By Laurie Valentine- COO & Trust Counsel
A charitable lead annuity trust (“CLAT”) is a legacy giving plan that provides a fixed income stream to one or more charitable causes for a designated period of years. At the end of the trust term the trust remainder can either be returned to you (this is a “grantor lead trust”) or be distributed to your children and/or other family members (a “non-grantor lead trust”).
While a gift to a “non-grantor” CLAT does not entitle you to a charitable income tax deduction, it does provide a way to pass assets to your children or others at reduced gift and estate tax cost. Gift tax savings come from the fact the tax value of the future gift to your family is the present value of the remainder interest in the trust, not the full value of what you place in the trust. With careful coordination of the fixed amount being paid to the charitable beneficiaries and the trust term you can reduce the present value of the remainder gift to family significantly. Estate tax savings result from the removal of the asset, any subsequent appreciation and the future income it generates from your estate.
If you church is in a capital campaign or you want to fund your annual giving for missions, childcare ministries or other charitable causes for the next few years in a way that coordinates your charitable giving with a tax-saving way to transfer assets to your family, a CLA may be the legacy giving plan to consider.
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The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.