January 2, 2012
Charitable Lead Annuity Trusts
Charitable lead annuity trusts (CLATs) can be effective estate planning tools. You can use these to zero out estate tax while leaving money to a charity of your choice. A CLAT is a “split interest trust that pays an annuity over a term of years to a lead beneficiary, namely a charity, until the end of such term at which time the remainder of assets in trust are distributed to a non-charitable beneficiary, such as an individual or non-charitable trust.”
A good time to use CLATS is when the beneficiaries will be receiving a substantial amount of wealth from other places. The charitable deduction is based on the value of the present interest of the annuity payable over a term of years. The estate tax can be reduced to zero per charitable deduction. The annuity amount is based on the 7520 rate at the time that the CLAT begins and how long the CLAT is set to last. If the 7520 rate is low, then the annuity amount that goes to the charitable lead beneficiary will be low. If the term of the CLST is longer, the annuity payment is also smaller.
See Sean R. Kenney, Testamentary Charitable Lead Annuity Trusts (A Brief Overview), WealthCounsel, Dec. 15, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.
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