The first level is a return of basis and has no tax. The next level is taxed as a capital gain and is subject to the lower capital gains tax. The third level is treated as ordinary income and is subject to ordinary tax rates. Conversely, payments from a Charitable Remainder Trust generally are treated as ordinary income. There is no return of basis or capital gain.
All payments are subject to ordinary income tax rates.
Therefore, taxes on payments from a Charitable Remainder Trust are generally higher than the taxes on payments from a CGA during the early years. The administrative requirements and expenses for a CGA are minimal compared to a Charitable Remainder Trust. Many CGA agreements are only 2 pages in length while Charitable Remainder Trust agreements can run into several dozen pages. There is no chance to run afoul with the self-dealing restrictions using a CGA while they can come into play with a Charitable Remainder Trust. Another advantage of a CGA over a Charitable Remainder Trust is the investment risk.