Charitable remainder trusts (CRTs) are similar to gift annuities in concept. Instead of purchasing an annuity contract directly from a charity, however, the CRT donor/grantor sets up a trust with the assistance of an attorney and transfers an initial sum into it, usually in excess of $100,000. She then collects taxable annual payments from trust earnings and/or principal. The

CRTs allow the donor—not the charity—to choose the amount she will receive each year. She can select a fixed dollar payment from the trust each year for life (a charitable remainder

The CRUT is the more popular of the CRTs because it has features that make it particularly suitable for retirement planning. First, it offers some inflation protection: for example, if the trust payout is seven percent annually, then as the trust (presumably) grows in value each year, so, too, will the dollar amount of the donor’s annual draw. With the CRAT, in contrast, the trust makes the same annuity payment to the donor every year for life ($60,000, for example).

Perhaps more important, the charitable remainder unitrust—unlike the annuity trust—is not required to dip into trust principal if investment income is insufficient to make an annual payment to the donor (although the trust can be drafted that way if the donor prefers). Many people choose investments that do not produce current income so the trust can grow over the long term, such as an undeveloped piece of land or growth stock in a company that does not pay dividends. These donors may not need the extra income until they retire, and would prefer to have as much money as possible available at that time.

The CRUT, unlike the CRAT, can be written to allow any accumulated shortfalls in the annual payout to be made up in later years, during retirement. In fact, the donor can make additional contributions to the CRUT (unlike the CRAT) whenever she has money to put aside. These features make the CRUT even better as a retirement-savings vehicle.