The two basic types of the charitable remainder trust are the charitable remainder annuity trust (CRAT) and the charitable remainder unitrust (CRUT).
Both the CRAT and the CRUT are irrevocable trusts which provide for an annual payment to a non-charitable beneficiary or beneficiaries (usually including the trust maker or the trust maker’s spouse), with the remainder of the trust property distributed to the charity upon the death of the last income beneficiary.
With the CRAT, a fixed dollar amount or percentage of the initial value of the trust assets is paid to the non-charitable beneficiary annually. The payment to the income beneficiary remains level for the entire term of the CRAT. Also, a CRAT may receive only on contribution. No additional property may be added to the trust. This type of trust is most appropriate for older donors who require a steady income and are not worried about future inflation.
With the CRUT, a fixed percentage of the value of the trust assets, revalued annually, is paid to the non-charitable beneficiary annually. With this type of trust, the amount of the distributions to the income beneficiaries will fluctuate each year, based on the annual value of the trust. Furthermore CRUTs allow for additional contributions of property after the initial contribution.
A NIMCRUT (Net Income with Make-up Charitable Remainder Unitrust); is a variant of the standard charitable remainder unitrust (CRUT). This variant still provides for distribution of a certain percentage of the trust’s assets, revalued each year, to the non-charitable beneficiary. The NIMCRUT, however, provides that if the trust’s income for the year is less than the specified distribution percentage, the non-charitable beneficiary will receive only an amount equal to the actual annual income. The good news is that if the trust’s income in future years exceeds the specified distribution amount, the trust will “make up” the shortfall in previous years’ payments.