What is it?

A CLUT is a charitable annuity that allows the donor to give variable annual amounts to a
charity for a limited period.

Who does it help?

Individuals that are charitable inclined.

Example: People who have highly appreciated assets or property and would like to receive a fixed annual payment.

Result:

At the end of the CLUT term the remainder interest is paid to a non-charitable beneficiary.

Transfer Assets to CLUT:

Client transfers assets (usually appreciating, low income-producing assets) to an irrevocable CLUT and designates any “qualified” charity as beneficiary. During the charitable lead term, the charity can plan on the enjoyment of annual payments in the form of a percentage of the value, determined annually, of the CLUT assets. The Client is entitled to a federal gift or estate tax charitable deduction, and may be entitled to an income tax deduction if the CLUT is 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 CLUT Term:

The charitable beneficiary retains the right to receive payments from the CLUT. The CLUT assets are valued annually, and the payment is a fixed percentage of the current fair market value. As a result, the payout to the charitable beneficiary will vary from year to year during the charitable lead term. Unlike the CRT, there is no minimum or maximum payout requirement. Generally, CLUTs are not subject to income tax, thus the CLUT can sell highly appreciated assets without paying capital gains tax.

Upon Expiration of CLUT Term:

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