2. All slides are
taken from this
book which
includes
detailed
explanations of
all concepts.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238
3. Charitable
Lead Trust
CLAT pays fixed $ annuity
CLUT pays % of trust assets
Charitable
Remainder
TrustCRAT pays fixed $ annuity
CRUT pays % of trust assets
Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donor
orheirs
Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/YearsDonoror
heirs
7. The primary
motivation for using a
Charitable Lead Trust
is for tax advantages,
most commonly in gift
and estate taxes
8. Charitable Lead Trusts are less
common than Charitable Remainder
Trusts, but usually involve larger dollar
amounts
$857,297 Average size
$3,165,337
Average size
Source: Split interest trusts, filing year 2011, Lisa Schreiber, IRS Statistics of Income
9. Charitable split-interest trusts by number
Source: Split interest trusts, filing year 2011, Lisa Schreiber, IRS Statistics of Income
6%
93%
1%
Charitable
Lead Trusts
Charitable
Remainder
Trusts
Pooled Income
Funds
11. Charitable split-interest trusts by
distributions to charity
Source: Split interest trusts, filing year 2011, Lisa Schreiber, IRS Statistics of Income
37%
62%
1%
Charitable
Lead Trusts
Charitable
Remainder
Trusts
Pooled Income
Funds
12. 0%
10%
20%
30%
40%
50%
60%
70%
CRT
CLT
Charitable beneficiary distribution sharebytype
This may reflect
greater CLT use of
private foundations
as charitable beneficiaries
Source: Split interest trusts, distributions of principal
and interest combined, filing year 2011, Lisa
Schreiber, IRS Statistics of Income
13. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donoror
heirs
CLT
Payments may be for
life or any time
period and can be for
any fixed dollar
(CLAT) or ongoing %
(CLUT) amount
Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/YearsDonoror
heirs
CRT
Payments may be for
life or up to 20 years,
and must be 5% to
50% of initial (CRAT)
or ongoing (CRUT)
trust assets
14. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donoror
heirs
CLT
The trust is not tax
exempt, so the trust
(non-grantor CLT) or
donor (grantor CLT)
must pay taxes on
trust earnings
Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/YearsDonoror
heirs
CRT
The trust is tax
exempt, so there are
no immediate taxes
on trust earnings
17. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donor’s
heirs
Projected
Value of
Remainder
Gift taxes are
not paid on the
ACTUAL
remainder that
eventually goes
to the heirs
Gift taxes are paid
on the present
value of the
PROJECTED
remainder going
to the heirs
19. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donor’s
heirs
Projected
Value of
Remainder
If actual growth is
greater than the §7520
rate, the ACTUAL
remainder will be
greater than projected
The
PROJECTED
remainder assumes
investment growth
at the §7520 rate
20. Gift tax on the transfer less the projected
value of charity’s payments
Value of
projected
payments
to charity
(not taxed)
Value of
projected
remainder
to family
(taxed)
22. Find the §7520 rate
http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
Multiply payment by annuity
factor in IRS Pub. 1457http://www.irs.gov/Retirement-Plans/Actuarial-Tables
Value of CLAT
payments
23. Find the §7520 rate
http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
Can choose
current or
one of last
two month’s
rate
$1MM/yearfor
11yearsCLAT
on10/31/13
Aug 2.0%
Sept 2.0%
Oct 2.4%
25. Find the §7520 rate
2.0%http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
To get the
highest
annuity
valuation
[lowest gift
tax]
select
Sept 2.0%
$1MM/yearfor
11yearsCLAT
on10/31/13
26. Table B – Annuity interest for a Term Certain
Interest at 2.0 Percent
Years Annuity Income Interest Remainder
8 7.3255 0.195737 0.853490
9 8.1622 0.211507 0.836755
10 8.9826 0.195737 0.820348
11 9.7868 0.211507 0.804263
12 10.5753 0.195737 0.788493
Find the §7520 rate
2.0%www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-
7520-Interest-Rates
Multiply annual payment by
annuity factor in IRS Pub. 1457
$1MM X 9.7868www.irs.gov/Retirement-Plans/Actuarial-Tables
$1MM/yearfor
11yearsCLAT
on10/31/13
27. Find the §7520 rate
2.0%www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-
7520-Interest-Rates
Multiply annual payment by
annuity factor in IRS Pub. 1457
$1MM X 9.7868www.irs.gov/Retirement-Plans/Actuarial-Tables
Value of annuity
$9,786,800
If annuity
pays more
than
annually, add
adjustment
factor from
Table K
$1MM/yearfor
11yearsCLAT
on10/31/13
28. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donor’s
heirs
Projected
Value of
Remainder
If actual
growth is 8%,
the ACTUAL
remainder will
be $6,670,903
Transfer $10MM to a CLAT with
$1MM/year charitable annuity
for 11 years ($9,786,800 value),
pay tax on $213,200 present
value of PROJECTED
remainder to kids
29. A CLT can “zero out” gift and estate
taxes by setting the
non-charitable
value at zero
30. Find the §7520 rate
2.0%www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-
7520-Interest-Rates
Multiply annual payment by
annuity factor in IRS Pub. 1457
$1,021,785 X 9.7868www.irs.gov/Retirement-Plans/Actuarial-Tables
Value of annuity
$10,000,005
If annuity
pays more
than
annually, add
adjustment
factor from
Table K
$1,021,785/
yearfor11
yearsCLATon
10/31/13
31. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Life/Years
Donor’s
heirs
Projected
Value of
Remainder
If actual
growth is 8%,
the ACTUAL
remainder will
be $6,308,281
The PROJECTED remainder
of $10MM at 2% §7520 with
$1,021,785/year charitable
payments for 11 years is $0,
resulting in $0 gift taxation
33. If the
charitable gift
(or bequest)
was already
planned, the
zeroed-out
CLAT
(or zeroed-out
testamentary
CLAT)
provides a no
cost chance at
tax-free
transfers to
family
35. A step-CLAT increases payments
to charity by a fixed
percentage, paying
less in early
years and
more in
later years
Year 5
$207
(+20%)
Because more
assets stay in longer,
more growth can occur,
leaving more for family
Year 6
$249
(+20%)
Year 7
$299
(+20%)
Year 8
$299
(+20%)
37. Donor
Charity
Initial
Transfer Anything
Left Over
Payments for
Years
Donor’s
heirs
Projected
Value of
Remainder
If ACTUAL length of
life is less, the ACTUAL
remainder will be greater
than projected
If payments are for life,
the PROJECTED
remainder is based on
NORMAL life
expectancy
38. The measuring life/lives
must be donor, any
ancestor of the
remainder beneficiaries,
or spouses of either.
Measuring life
cannot be used
“if there is at
least a 50 percent
probability that the
individual will die within
1 year” unless person
actually lives at least 18
months.
39. Your son called to tell you that you are the
measuring life for his CLT, so make sure to
live slightly over 18 more months
40. While you are waiting…
• A CRT can be used to
generate current
income while waiting
for a CLT to mature
• Multiple CLTs can be
staggered to end at
different times to
smooth the transfer
• CLTs are often
established at death
(testamentary)
43. Distributing CLAT Shares Early
IRS has approved early
termination when the
CLAT immediately pays all
future required payments
(undiscounted) to the
charityPLRs 200225045, 199952093, 9844027
44. Issues for Generation Skipping Transfers
• CLATs (not CLUTs) taxed on
projected and actual amount
transferred to skip persons
• If charity can be changed, tax is
recipient liability, so trust
payment of tax creates more
tax
45. Growth can also avoid taxation using a
non-charitable plan (Grantor Retained
Annuity Trust), but the creator must outlive
the term of the GRAT for it to work
46. I want to donate
income from my
assets, but I am
already over the
income
percentage limit
for deductions
47. Donor
(Non-Grantor) CLT
taxed on income
Charity
Initial
Transfer
Anything
Left Over
Payments
for
Life/Years Donor’s
heirs
Charitable
deductions
to CLT with
no income
limitationsCLT can also pay
out any income in
excess of annuity
or unitrust amount
49. Grantor CLT
• Future income is
taxed to donor
• Donor gets a
deduction
• Remainder included
in donor’s estate
(typically returns to
donor)
Non-Grantor CLT
• Future income is
taxed to trust
• Trust deducts
payments to charity
• Remainder not
included in donor’s
estate
50. I give regularly, but
I need a giant
deduction
to offset a
big spike in income
this year
(e.g., due to a sale,
Roth conversion, bonus,
etc.)
51. In a grantor CLT,
the donor
commits to
future gifts and
receives an
immediate tax
deduction for
the present
value of these
gifts
53. Donor
Charity
Initial
Transfer Anything
Left Over
$10,000 Payments
for 20 years
Funding $10,000/year gifts through a 20-year
grantor CLAT (returning remainder to donor)
creates an immediate deduction of
• $163,514 at 2% §7520 rate
• $98,181 at 8% §7520 rate
55. Grantor CLTs
• Donor gets a
deduction
• Future income is
taxed to donor
• Remainder included
in donor’s estate
(often returns to
donor)
Non-Grantor CLTs
• Future income is
taxed to trust
• Trust deducts
payments to charity
• Remainder not
included in donor’s
estate
56. Grantor CLTs
• Donor gets a
deduction
• Future income is
taxed to donor
• Remainder included
in donor’s estate
(often returns to
donor)
Non-Grantor CLTs
• Future income is
taxed to trust
• Trust deducts
payments to charity
• Remainder not
included in donor’s
estate
CLT “Defective Grantor Trust” (aka “SuperTrust”)
57. CLT“Defective Grantor Trust”(aka“Super Trust”)
Non-Grantor CLTs
• Future income is
taxed to trust
• Trust deducts
payments to charity
• Remainder not
included in donor’s
estate
A Grantor CLT for
Income Tax purposes.
A Non-Grantor CLT for
Estate Tax purposes.
Grantor CLTs
• Donor gets a
deduction
• Future income is
taxed to donor
• Remainder included
in donor’s estate
(often returns to
donor)
58. How does it work?
• Estate tax and
income tax grantor
trust definitions are
not precisely
identical
• If donor keeps a right
to get trust property
by substituting other
property of equal
value, it causes
grantor treatment
for income tax, but
not estate tax
59. The “Defective Grantor
Trust” or “Super Trust”
attempts to mix
characteristics of the
two kinds of CLTs. It
may work, but lacks
conclusive authority.
Less aggressive
planners might leave
this superhero in the
phone booth.
61. CLTs must follow same rules as
private foundations
for self-dealing, taxable expenditures, jeopardizing
investments, and excess business holdings
62. A GRANTOR CLT
may be a subchapter S
corporation
shareholder because
donor is treated as
stock owner
NON-GRANTOR CLT
should not hold
subchapter S shares,
because trust is treated
as the owner
(allowed only when ESBT election
eliminates charitable deductions)
Subchapter S-Corp Stock
63. Unrelated business
income (e.g., from
debt-financed
property or actively
managing business) is
allowed.
But in a non-grantor
CLT, giving this income
to charity is
deductible only at
50% (to public
charity) or 30% (to
private foundation).
65. Help me
HERE
convince my bosses that continuing to build and
post these slide sets is not a waste of time. If
you work for a nonprofit or advise donors and
you reviewed these slides, please let me know
by clicking
66. If you clicked on
the link to let
me know you
reviewed these
slides…
Thank
You!
67. This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
University, home to the nation’s largest
graduate program in personal financial
planning.
To find out more about the online
Graduate Certificate in Charitable
Financial Planning go to
www.EncourageGenerosity.com
To find out more about the M.S. or
Ph.D. in personal financial planning at
Texas Tech University, go to
www.depts.ttu.edu/pfp/
Graduate Studies in
Charitable Financial Planning
at Texas Tech University
