CLAT - Helping yourself while helping others!

Josh Nowack

March 25, 2015

While this sort of plan is likely not appropriate for most of my client base...today...my sneaky suspicion is that it will become quite relevant in the coming years.  A CLAT (more formally known as a charitable lead annuity trust) is a trust that allows your to contribute to your favorite charity in a very efficient manner.  What do I mean exactly?  Read on.

So let's just say you have your favorite charity.  Let's pick Global Foodbanking Network (foodbanking.org).  And let's just say you make a meaningful contribution every year.  Let's just say that you contribute $5,000 per annum.  Under the traditional appraoch, you'd wait for them to make their annual campaign and then you'd write a check.  Using a CLAT, you could spice this up a bit.  You commit and fund a trust to the tune of approximately $100,000 (yes, you have to write a check for the full amount).  That amount goes to the trust.  So using simple numbers, the trust now has $100,000.  And you now have earned a $100,000 tax deductions subject to a 30% AGI limitation.  Over the next 15-20 years (trust will prescribe the actual duration), the trust will make annual installment payments to pay off the $100,000 commitment.  However, between today and the time in which the commitment has been fulfilled, there are trust assets available for investment in an asset, or assets or your choosing, as trustee.  After the commitment has been fulfilled, you can designate who receives the remainder - may be that's you or your children.  Either case, the asset has bypassed estate tax (if that's a consideration).  More importantly, you've earned a deduction for $100,000 for your contribution, but you still retain the right to invest the money and earn income off of the principal.  

This is a pretty neat trick and really being remarkably tax efficient and opportunistic while supporting your favorite charity.  Questions?  Call me...

 

   

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