Types of Charitable Remainder Trusts: Your Full Breakdown

Creating a charitable remainder trust is one way to support causes you care about while still keeping income rights for a set period or for life. But not all charitable remainder trusts work the same way. The structure you choose affects how your trust distributes income, who benefits, and how your assets are handled long-term. It’s important to understand the different types of charitable remainder trusts available, especially if you are structuring one under Texas law.

Let’s answer questions about the main types of charitable remainder trusts, their mechanics, and how they differ based on payment method, duration, and structure. 

1. What Are the Main Types of Charitable Remainder Trusts?
2. How Charitable Remainder Annuity Trusts Fit Into These Types?
3. How Charitable Remainder Annuity Trusts Fit Into These Types?
4. How Charitable Remainder Unitrusts Compare to Other Types
5. Types of Charitable Remainder Trusts With Flexible Payment Options
6. How Payment Duration Affects the Types of Charitable Remainder Trusts
7. Choosing Between the Different Types of Charitable Remainder Trusts
8. How Taxes and Remainder Rules Apply to All Types of Charitable Remainder Trusts
9. How Texas Law Affects the Types of Charitable Remainder Trusts You Can Set Up
10. Finding the Right Type of Charitable Remainder Trust for You

What Are the Main Types of Charitable Remainder Trusts?

You can choose between two main types of charitable remainder trusts based on how the trust makes distributions to you or your chosen income beneficiaries:

• Charitable Remainder Annuity Trusts (CRATs)
• Charitable Remainder Unitrusts (CRUTs)

Each option follows federal tax guidelines set out in the Internal Revenue Code and must also comply with state-level requirements. In Texas, these types of trusts are governed by the Texas Trust Code and relevant sections of the Texas Property Code.

How Charitable Remainder Annuity Trusts Fit Into These Types

A Charitable Remainder Annuity Trust pays you or your chosen beneficiary a fixed amount each year. The amount is set at the time the trust is created and never changes, regardless of how the trust’s assets perform. This structure offers predictability but requires careful planning because you cannot make additional contributions once the CRAT is funded.

Key Features of a CRAT:

• Pays a fixed dollar amount annually
• Payout must be between 5% and 50% of the initial fair market value of the trust assets
• No additional contributions allowed after funding
• The trust terminates after a specified term (no more than 20 years) or the life of one or more beneficiaries
• When the term ends, the remainder goes to your chosen qualified charity

In Texas, the CRAT must also meet the “10% minimum remainder” test, meaning the present value of the remainder interest going to the charity must be at least 10% of the initial value of the trust assets.

This type of trust works best when you want steady, predictable income and don’t plan to add more assets after the initial setup.

How Charitable Remainder Unitrusts Compare to Other Types

A Charitable Remainder Unitrust differs from an annuity trust in one key way: the payment amount is based on a fixed percentage of the trust’s assets, revalued each year. If the value of the trust increases, the income payments grow. If the value drops, so do the payments.

Key Features of a CRUT:

• Pays a fixed percentage (5% to 50%) of trust assets’ annual value
• Annual payments vary depending on performance
• Allows additional contributions over time
• Term can be life-based or fixed up to 20 years
• Remainder goes to a qualified charitable organization

A CRUT may be more suitable for you if you want your income to grow with the market or you plan to add more assets in the future.

The Texas Trust Code permits this structure, but you must ensure that the trust language strictly follows the IRS and state-prescribed format, especially if you want to preserve federal income tax benefits.

Types of Charitable Remainder Trusts With Flexible Payment Options

There are different subcategories of CRUTs depending on how payments are handled and whether missed payments can be made up in future years.

Standard CRUT

This is the basic version where the beneficiary receives the annual percentage payout, based on the current value of the trust. Payments go out regardless of income or appreciation, which could mean invading principal in down years.

Net Income CRUT (NICRUT)

Instead of paying a percentage of the trust’s value, a NICRUT pays only the actual income the trust earns, capped at the fixed percentage. This structure is sometimes used when the trust holds non-income-producing assets, like undeveloped real estate or privately held stock.

Net Income with Makeup CRUT (NIMCRUT)

This version allows you to catch up on missed distributions in later years when the trust earns more income. If income was low in earlier years, future gains can make up for it—up to the cumulative percentage that was supposed to be paid.

Texas law permits all these CRUT variations, but strict compliance with Internal Revenue Code Section 664 and related treasury regulations is necessary to avoid disqualification.

How Payment Duration Affects the Types of Charitable Remainder Trusts

Each trust must specify when payments begin and end. You can design a charitable remainder trust to last for:

• Your lifetime
• The lifetime of another person (like your spouse)
• A fixed term not exceeding 20 years
• A combination of lives and years (e.g. until your death or 20 years, whichever comes first)

If you select a trust to run for life, then once you and any other designated income beneficiaries pass away, the remaining assets must go to a qualified charity. Under Texas law, this charity must be organized for a public purpose and eligible under both state and federal standards.

Choosing Between the Different Types of Charitable Remainder Trusts

The right type of charitable remainder trust depends on your income needs, the type of assets you want to contribute, and your estate planning goals. Here are some quick comparisons:

Trust Type	Payout Type	Contribution Flexibility	Income Stability	Suitable For
CRAT	Fixed annuity	One-time only	High	Predictable income, low asset growth
CRUT	Percentage of value	Ongoing	Variable	Growth-focused plans
NICRUT	Net income only	Ongoing	Low/Variable	Low-income assets or real estate
NIMCRUT	Net income with catch-up	Ongoing	Flexible	Unpredictable income with future upside

Each structure has its own funding and drafting requirements under Texas law. For example, if your trust assets include Texas real property, ensure the deed transfers comply with Texas title and recording laws, and use a Texas trustee familiar with local rules.

How Taxes and Remainder Rules Apply to All Types of Charitable Remainder Trusts

Both CRATs and CRUTs are tax-exempt trusts, meaning they do not pay income tax at the trust level. Instead, you or your chosen beneficiary will pay tax on distributions received. The type of tax depends on the trust’s income makeup—ordinary income, capital gains, or tax-free income.

Additionally, you may be eligible for a partial charitable deduction at the time of funding, based on IRS-approved calculations. In Texas, you must ensure your trust document complies with both federal income tax standards and local property transfer rules to avoid any loss of benefits.

How Texas Law Affects the Types of Charitable Remainder Trusts You Can Set Up

Texas allows both CRATs and CRUTs, as long as they follow the Texas Property Code and meet federal IRS regulations. You must work within guidelines that protect charitable interests, including:

• Minimum remainder value must be 10% of the initial fair market value
• No payment to non-individuals unless explicitly permitted
• Trustee must follow the prudent investor rule under Texas Trust Code §117.004
• Your trust must be irrevocable once created

You may also need to account for community property rules if you are married and plan to fund the trust with jointly owned assets. Always verify that your trust aligns with Texas marital property laws and tax implications before finalizing the trust instrument.

Finding the Right Type of Charitable Remainder Trust for You

Understanding the types of charitable remainder trusts helps you make informed decisions about how to meet your financial goals while benefiting a cause you support. Whether you choose a CRAT for fixed income or a CRUT for flexibility and growth, each option has its own mechanics, tax treatment, and structural requirements.

To get the full benefit of a charitable remainder trust, your documents must meet strict federal and Texas requirements. Pay attention to payout limits, duration terms, funding restrictions, and remainder valuations. The better your structure, the more effective your planned giving becomes.

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