What is it?

A CLAT pays a fixed amount to a charity for a set number of years.

Who does it help?

Individuals that are charitable inclined.

Example: People who received a large bonus that may not need to access the bonus in the current year.

Result:

At the end of the CLAT term the remaining assets are transferred to the beneficiaries of the CLAT gift tax free.

Transfer Assets to CLAT:

Client transfers assets (usually appreciating, low income-producing assets) to an irrevocable CLAT and designates any “qualified” charity as beneficiary. During the charitable lead term, that charity can plan on the enjoyment of annual payments in the form of an annuity. Client is entitled to a Federal gift tax or estate tax charitable deduction, and may be entitled to an income tax deduction if the CLAT is structured as a grantor trust. The Client may have to pay gift or estate tax on the present value of the remainder interest passing to a non-charitable beneficiary.

During CLAT Term:

The charitable beneficiary receives annuity payments from the CLAT. The annual payment amount will be a fixed percentage of the net fair market value of the assets contributed to the CLAT. Consequently, the payout remains constant each year during the charitable lead term. Unlike the CRT, there is no minimum or maximum payout requirement. Generally, CLATs are not subject to income tax, which allows the CLAT to sell highly appreciated assets without paying capital gains tax.

Upon Expiration of CLAT Term:

The CLAT’s remaining assets pass to Client’s designated non-charitable beneficiaries (usually Client’s family members) free of estate tax.