Charitable Gift Annuity vs. Charitable Remainder Trust

Planned giving allows individuals to support charitable causes while also securing personal financial advantages. Two established methods for this are the Charitable Gift Annuity (CGA) and the Charitable Remainder Trust (CRT). While both combine charity and financial planning, they possess unique legal structures, operational mechanics, and benefits for the donor.

The Charitable Gift Annuity Explained

A Charitable Gift Annuity (CGA) is established through a contract between a donor and a single charitable organization. The donor makes an irrevocable gift of assets to the charity, and in exchange, the charity is contractually obligated to pay a fixed income, known as an annuity, for the remainder of the donor’s life. Upon the death of the annuitant, the charity retains the remaining portion of the gift.

The annuity payment is determined when the gift is made and remains unchanged. This fixed payment is calculated based on the age of the person receiving the payments, with older annuitants receiving a higher payout rate. Most charities follow rates suggested by the American Council on Gift Annuities (ACGA) to ensure payments are reasonable.

From a tax perspective, a CGA provides an immediate partial income tax deduction in the year the gift is made. The annuity payments themselves also receive favorable tax treatment. Each payment is typically composed of a mix of tax-free return of principal and taxable income.

The Charitable Remainder Trust Explained

A Charitable Remainder Trust (CRT) is an irrevocable trust, a distinct legal entity, created to manage assets provided by a donor. The donor transfers property into the trust, which is then managed by a trustee. The trust makes regular income payments to the donor or other beneficiaries for a specified period—either for life or a term of up to 20 years—after which the remaining assets are distributed to one or more designated charities.

A distinction exists between the two primary types of CRTs, which impacts the income stream. A Charitable Remainder Annuity Trust (CRAT) pays a fixed dollar amount each year. In contrast, a Charitable Remainder Unitrust (CRUT) pays a fixed percentage of the trust’s fair market value, which is recalculated annually, so payments can fluctuate with the trust’s investment performance.

Donors receive an immediate partial income tax deduction for the present value of the remainder interest that will eventually go to charity. The trust’s tax-exempt status allows the trustee to sell highly appreciated assets without triggering immediate capital gains tax. This allows the full proceeds to be reinvested within the trust, potentially generating a larger income stream.

Key Comparative Factors for Decision-Making

Legal Structure and Complexity

A CGA is a simple two-party contract, often just a few pages long, making it easy and inexpensive to establish. A CRT, conversely, is a formal trust that requires the drafting of a legal trust document and the appointment of a trustee. This process is more complex and involves legal fees for its creation and ongoing administration.

Contribution Minimums

The entry point for these giving strategies differs. CGAs are accessible, with many charities offering them for contributions as low as $10,000 or $25,000. CRTs are intended for more substantial gifts, with minimums starting at $100,000 to justify the administrative costs.

Income Stream Predictability

A CGA provides a fixed, unchangeable dollar amount for life, backed by the full assets of the issuing charity. A CRAT also offers a fixed annual payment, but its security is limited to the assets held within the trust itself. A CRUT offers a variable income stream, as the annual payment is a percentage of the trust’s fluctuating value, which can be advantageous in a growing market but carries risk.

Flexibility of Donated Assets

The type of asset a donor wishes to contribute can be a deciding factor. CGAs are best suited for simple assets like cash or marketable securities. CRTs provide greater flexibility and are designed to handle a wide array of complex, non-liquid assets like real estate or shares in a family business.

Donors aged 70 ½ and older can make a one-time, tax-free transfer from an Individual Retirement Account (IRA) to establish a CGA or a CRT. For 2025, this transfer is capped at $54,000, an amount that is adjusted for inflation. This distribution does not generate an income tax deduction, but the amount transferred is excluded from the donor’s taxable income and can satisfy their annual Required Minimum Distribution (RMD).

Donor Control and Administration

With a CGA, the donor relinquishes control of the asset to the charity upon making the gift. The charity manages the funds, and the donor’s only ongoing role is to receive payments. A CRT offers more donor involvement, allowing the donor to select the trustee and retain the right to change the charitable beneficiaries during the trust’s term.

Simplicity vs. Customization

The choice between a CGA and a CRT involves a trade-off. A CGA is a straightforward tool for donors seeking a fixed income from a gift to a single charity. A CRT is a more flexible instrument for donors who may want to benefit multiple charities and retain more control over the gift’s administration.