Tuesday, November 30, 2010
Richard Fox (attorney, Philadelphia, PA) and Mark Teitelbaum (attorney) recently published their article entitled Validity of Shark-Fin CLATs Remains in Doubt Despite IRS Guidance, Est. Plan. J. (Oct. 2010). The conclusion is below:
Until the IRS clarifies its position, there would appear to be a question as to the validity of the shark-fin CLAT as a qualified charitable lead trust, particularly one funding a back-loaded balloon payment to charity using life insurance proceeds. Because of the risk of the disallowance of the income, gift, or estate tax charitable deduction, a potentially disastrous result, planners should exercise caution in using such a CLAT and should consider alternative structures. These alternatives include those leveraging the benefits of life insurance for the noncharitable remainder beneficiaries, rather than the charity.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.