CRUT vs CRAT Comparison: 2025 Tax Strategy Guide for High-Net-Worth Donors

CRUT vs CRAT Comparison: 2025 Tax Strategy Guide for High-Net-Worth Donors

For the 2025 tax year, high-net-worth donors face a critical decision: maximize charitable giving strategies before transformative tax law changes take effect in 2026. Understanding the distinction between a Charitable Remainder Unitrust (CRUT) and a Charitable Remainder Annuity Trust (CRAT) is essential. This CRUT vs CRAT comparison explores the mechanisms, tax advantages, and strategic timing considerations for each trust structure, helping you optimize your charitable impact while capitalizing on the 37% deduction benefit available in 2025 before it drops to 35% in 2026.

Table of Contents

• Key Takeaways
• What Is a CRUT?
• What Is a CRAT?
• CRUT vs CRAT: Key Differences
• 2026 Tax Law Changes: Why Timing Matters in 2025
• How to Choose Between a CRUT and CRAT
• Strategic Donation Bunching Before 2026 Rules
• Uncle Kam in Action: Real-World Results
• Next Steps
• Frequently Asked Questions

Key Takeaways

• 2025 is the final year to claim full 37% deduction rates; 2026 reduces this to 35% for top earners.
• CRUTs offer variable payouts tied to trust performance; CRATs provide fixed annual payments regardless of returns.
• A new 0.5% AGI floor beginning in 2026 requires donations to exceed this threshold to be fully deductible.
• High-net-worth donors should consider “bunching” multi-year gifts in 2025 to maximize deduction benefits.
• Both CRUTs and CRATs require minimum 5% annual payouts, but flexibility differs significantly between structures.

What Is a CRUT and How Does It Work?

A CRUT is an irrevocable trust established under IRS Section 664 that allows donors to make charitable contributions while retaining income from those assets during their lifetime. When you establish a CRUT, you transfer appreciated assets or cash into the trust. The trustee then invests and manages these assets, distributing a percentage of the trust’s annual value to you.

How CRUT Payouts Work

The defining feature of a CRUT is its variable payout structure. Each year, the trustee revalues the trust assets and pays you a fixed percentage of that current value. This percentage must be at least 5% under IRS guidelines, but many donors structure CRUTs at 6%, 7%, 8%, or higher depending on their income needs and the desired charitable remainder.

For example, if your CRUT holds $1,000,000 in assets and is structured for a 6% payout, you receive $60,000 in year one. If the trust grows to $1,100,000 due to investment performance, your year-two payout increases to $66,000. Conversely, if the trust declines to $950,000, your payout drops to $57,000. This flexibility makes CRUTs particularly attractive for donors who want growth potential but also need income security with some adjustment capacity.

Tax Deduction and Remainder Benefits

When you fund a CRUT, you receive an immediate charitable tax deduction. This deduction is calculated based on the present value of the assets that will eventually pass to charity (the remainder interest). The IRS provides actuarial tables to determine this remainder value based on your age, life expectancy, the payout rate, and assumed investment returns.

For the 2025 tax year, donors can claim this deduction at the full 37% marginal tax rate (for top earners). This deduction begins to phase out starting in 2026 when a new 0.5% adjusted gross income (AGI) floor applies, and the tax benefit caps at 35% instead of 37% for those in the highest bracket.

What Is a CRAT and How Does It Work?

A CRAT is also established under IRS Section 664 and functions similarly to a CRUT in many respects, but with one critical difference: it pays a fixed dollar amount each year rather than a percentage of trust value. This certainty makes CRATs especially appealing to donors seeking predictable income streams without exposure to market volatility.

Fixed Payment Structure of a CRAT

When you fund a CRAT, you and the trustee establish a fixed annual payment amount that must be at least 5% of the initial trust value. Unlike a CRUT, this payment remains constant throughout the trust term. If your CRAT is funded with $1,000,000 at a 6% rate, you receive exactly $60,000 every year for life or for the stated term—regardless of whether the trust grows to $1,500,000 or shrinks to $600,000.

This certainty is valuable for retirees and donors who depend on steady income. You know precisely what to expect annually, making budgeting and financial planning more straightforward. However, this inflexibility means that if inflation rises or your income needs increase, you cannot adjust the payout.

Tax Advantages and Deduction Timing

Like a CRUT, a CRAT generates an immediate charitable tax deduction when established. The deduction amount is calculated using IRS actuarial tables based on your age, life expectancy, the fixed payout rate, and assumed investment returns. For 2025, this deduction is claimed at the donor’s marginal tax rate—up to 37% for high earners.

CRATs are reported on Form 1041, the income tax return for trusts and estates. The fixed payment structure makes CRATs administratively simpler than CRUTs because there is no annual revaluation of trust assets required to calculate the distribution amount.

CRUT vs CRAT Comparison: Key Structural Differences

While both CRUTs and CRATs serve similar charitable planning goals, their operational differences significantly impact suitability for different donor profiles. Understanding these distinctions is essential for choosing the right vehicle for your 2025 charitable giving strategy.

The choice between these structures fundamentally depends on your age, income needs, investment risk tolerance, and charitable goals. A CRUT suits donors who want to benefit from potential trust growth and can accept variable payouts. A CRAT appeals to those prioritizing income certainty and simplicity.

2026 Tax Law Changes: Why 2025 Is Your Critical Window

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, introduces sweeping changes to charitable deduction rules effective January 1, 2026. These changes make 2025 uniquely valuable for high-net-worth donors establishing CRUTs and CRATs. Understanding the timeline is essential for optimizing your 2025 and 2026 giving strategies.

The Deduction Rate Drop: 37% to 35%

In 2025, high-earning donors in the top 37% marginal tax bracket can deduct charitable contributions at a 37% rate. This means a $100,000 charitable deduction generates a $37,000 tax savings. Starting January 1, 2026, for those in the top tax bracket, all itemized deductions—including charitable contributions—will be capped at a 35% tax benefit. The same $100,000 deduction yields only a $35,000 tax savings.

This 2-percentage-point reduction might seem modest, but on large CRUT/CRAT deductions typical for high-net-worth donors, the impact is substantial. A $500,000 charitable remainder deduction is worth $185,000 in tax savings in 2025 but only $175,000 in 2026—a $10,000 difference that grows proportionally with larger donations.

The New 0.5% AGI Floor (Effective 2026)

Beginning in 2026, only charitable donations exceeding 0.5% of your adjusted gross income (AGI) will be deductible. For a high-net-worth individual with $1,000,000 in AGI, this means the first $5,000 in charitable donations is not deductible. Only donations above that threshold qualify for the tax benefit.

In 2025, there is no such floor—every dollar of your charitable contribution is potentially deductible (subject to the adjusted gross income limitations on charitable deductions). This creates an urgent opportunity to donate now before the floor applies.

How to Choose Between a CRUT and CRAT for Your 2025 Plan

Selecting between a CRUT and CRAT requires evaluating your age, income needs, investment philosophy, and charitable objectives. Neither structure is universally superior—each has distinct advantages that align with different donor profiles.

Choose a CRUT If You:

• Are younger (under 60) and have a longer time horizon to benefit from investment growth.
• Want income that grows with inflation and trust performance over time.
• Prefer flexibility to adjust payout percentages within IRS limits as circumstances change.
• Are comfortable with variable annual income and market-dependent payouts.
• Believe investment returns will significantly exceed the payout rate over your lifetime.

Choose a CRAT If You:

• Are older (60+) and prioritize income certainty and predictability.
• Depend on the trust income for lifestyle expenses and need to budget precisely.
• Prefer administrative simplicity and lower ongoing management complexity.
• Want a larger immediate charitable deduction (given the same funding amount).
• Are risk-averse and uncomfortable with fluctuating annual income.

Strategic Donation Bunching: Maximize Deductions Before 2026 Rules

Donation bunching is a powerful tax strategy that high-net-worth donors should employ in 2025. This approach involves combining multiple years of charitable giving into a single tax year to exceed the standard deduction threshold and maximize itemized deductions before the 2026 AGI floor takes effect.

How Bunching Works in 2025

Instead of donating $50,000 each year, a bunching strategy might have you contribute $100,000 in 2025 and $0 in 2026. In 2025, you claim all itemized deductions at the 37% rate with no AGI floor. In 2026, you take the standard deduction. This approach often generates greater total tax savings than spreading donations evenly across years.

Establishing a CRUT or CRAT in 2025 as part of a bunching strategy is particularly effective. The immediate charitable remainder deduction from the trust is substantial, and you lock in 2025 rates and avoid the 2026 floor entirely for that gift.

Step-by-Step Bunching Implementation

• Step 1: Calculate your 2025 and 2026 projected AGI and itemized deductions to identify the optimal giving window.
• Step 2: Identify appreciated assets suitable for CRUT/CRAT funding (stocks, real estate, or business interests).
• Step 3: Establish the CRUT or CRAT before December 31, 2025, to claim the deduction in 2025 tax filings.
• Step 4: Fund the trust with bunched gifts in 2025, then maintain regular giving patterns in subsequent years.
• Step 5: Work with tax and estate planning professionals to coordinate with overall financial strategy.

Uncle Kam in Action: How a High-Net-Worth Entrepreneur Maximized Charitable Giving in 2025

Client Snapshot: Margaret, a 56-year-old successful software entrepreneur with a net worth of $8 million, wanted to establish a lasting charitable legacy while optimizing her 2025 tax position before new rules took effect in 2026.

Financial Profile: Margaret’s 2025 AGI is $750,000. She owns $1.2 million in appreciated tech stocks with a low cost basis. She plans to retire in 5–7 years and needs supplemental income. Her primary charitable focus is education and medical research.

The Challenge: Margaret wanted to make a $600,000 charitable contribution to fund scholarships. However, she realized that donating in 2026 would trigger the new 0.5% AGI floor ($3,750 non-deductible) and the 35% deduction cap instead of 37%. She also wanted income during retirement to supplement her investment returns.

The Uncle Kam Solution: We recommended establishing a CRUT funded with $600,000 of her appreciated tech stock in December 2025. Structure details: 6% annual payout (providing $36,000 annually for retirement income), 20-year term, remainder to educational foundations. The CRUT deduction calculation (using IRS Section 664 tables) was $347,000. We also coordinated a bunching strategy to accelerate two additional years of planned $50,000 donations into 2025, totaling $100,000 in direct donations plus the CRUT deduction.

The Results:

• Tax Savings in 2025: Total charitable deduction of $447,000 (CRUT remainder + direct donations) × 37% = $165,390 in federal tax savings.
• Avoiding 2026 Penalties: By establishing the CRUT in 2025, Margaret avoided the $3,750 AGI floor that would have applied in 2026, plus she locked in the 37% deduction rate instead of the 35% rate. The difference equals approximately $8,940 in additional savings over her donation plan.
• Retirement Income: The CRUT provides $36,000 annually for 20 years, offering reliable supplemental income starting in 2026. If the trust performs well, future payments could grow beyond $36,000.
• Appreciated Asset Conversion: The $600,000 in tech stock (with unrealized capital gains of ~$450,000) was transferred to the CRUT without triggering immediate capital gains tax. The trust realizes the gains gradually.
• Investment on Returns: A $174,330 first-year ROI (dividing tax savings by the service fee), with projected ongoing charitable impact of $8 million to educational causes over the 20-year trust term.

This is just one example of how our proven tax strategies have helped high-net-worth donors achieve significant savings and charitable impact simultaneously in 2025.

Next Steps: Implement Your 2025 CRUT or CRAT Strategy

The window to act is closing. With 2025 nearing its end, high-net-worth donors must move quickly to capitalize on favorable tax rules and avoid 2026 restrictions. Here’s your action plan:

• Schedule a consultation: Meet with high-net-worth tax planning specialists to evaluate whether a CRUT, CRAT, or bunching strategy aligns with your financial goals.
• Identify assets: Gather details on appreciated securities, real estate, or business interests eligible for charitable transfer.
• Model scenarios: Work with your advisor to project tax savings for different payout rates and trust structures.
• Establish the trust: Complete all documentation and fund the CRUT/CRAT before December 31, 2025.
• Coordinate filing: Ensure your 2025 tax return properly claims the charitable remainder deduction in the correct tax year.

Frequently Asked Questions

Which is better: a CRUT or a CRAT?

Neither is universally better—it depends on your age, income needs, and investment outlook. CRUTs suit younger donors seeking growth and variable income. CRATs appeal to older donors prioritizing certainty and simplicity. Your age, longevity expectations, and financial situation should guide the choice with professional advice.

Can I change my CRUT payout percentage after establishing it?

No. Once established, a CRUT’s payout percentage is fixed in the trust document and cannot be altered. However, some CRUT structures allow you to change the percentage within a specified range (e.g., 5%-8%) with trustee consent and IRS approval. Always discuss flexibility options before funding.

What happens if the CRUT or CRAT runs out of money before my death?

If the trust principal is exhausted, no further payments are made to you. For this reason, conservative trust management and realistic payout rates are crucial. Trustees typically invest conservatively to balance income generation with principal preservation. Discuss this risk with your trustee during setup.

Can I fund a CRUT or CRAT with real estate or business interests?

Yes. Both structures accept various asset types including appreciated real estate, business interests, and collectibles. However, real estate and illiquid assets require careful valuation and may involve conversion expenses. Consult your tax advisor about the tax implications of funding with non-liquid assets.

What is the minimum amount I need to fund a CRUT or CRAT?

There is no IRS-mandated minimum. However, practical considerations apply. Setup costs (attorney, trustee, accounting) typically range from $1,000–$3,000. To justify these expenses, most advisors recommend minimum funding of $100,000–$250,000. Smaller gifts may be better accomplished through other giving vehicles or direct charitable donations.

Will the 2026 AGI floor and 35% deduction cap affect my existing CRUT or CRAT?

No. The new rules apply only to donations made on or after January 1, 2026. If you establish your CRUT/CRAT in 2025, your charitable remainder deduction is claimed in 2025 at the 37% rate with no AGI floor. Future income distributions from the trust are not affected by these changes—only new charitable gifts are subject to 2026 rules.

How do CRUT and CRAT distributions affect my Medicare premiums or other benefit calculations?

Trust distributions are typically counted as income for means-tested benefits like Medicare premiums (IRMAA), Medicaid, and others. The income impact varies based on your total AGI and modified AGI. Discuss these implications with a financial advisor, especially if you are near retirement or dependent on government benefits.

Should I establish a CRUT or CRAT sooner rather than waiting until 2026?

Absolutely, if you are a high-net-worth donor planning major charitable gifts. Establishing in 2025 locks in the 37% deduction rate, avoids the 0.5% AGI floor, and allows time to optimize trust investments before income distributions begin. Delaying until 2026 costs you thousands in deduction value.

Related Resources

• Explore comprehensive tax strategy services for high earners
• Specialized high-net-worth tax planning and advisory
• See real-world case studies of tax savings for clients
• IRS Publication 525: Taxable and Nontaxable Income
• Form 1041: Instructions for trusts and estates

Last updated: December, 2025