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Understanding the Charitable Lead Annuity Trust (CLAT): A Comprehensive Guide
Definition & Meaning
A charitable lead annuity trust (CLAT) is a specific type of irrevocable trust designed to support charitable organizations. In a CLAT, the donor specifies a fixed annual payment that the trust must distribute to designated charities for a predetermined period. After this period ends, the remaining assets in the trust are passed on to non-charitable beneficiaries, such as family members or other individuals named by the donor. The key feature of a CLAT is that the annual payments to the charities are set as a fixed dollar amount or a percentage of the initial contribution made to the trust.
Table of content
Legal Use & context
Charitable lead annuity trusts are commonly used in estate planning and tax strategy. They fall under the broader category of charitable trusts, which are utilized to benefit both the donor and charitable organizations. Legal professionals often incorporate CLATs in estate plans to provide income to charities while also reducing the taxable estate of the donor. Users can manage certain aspects of establishing a CLAT using legal templates from US Legal Forms, but it is advisable to consult with an attorney for complex situations.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A donor establishes a CLAT with an initial contribution of $1 million. They specify that $50,000 will be paid annually to a local charity for 10 years. After 10 years, the remaining assets in the trust will go to their children.
Example 2: A donor creates a CLAT that pays 5 percent of the initial contribution each year to a nonprofit organization for a period of 15 years, after which the remaining assets are distributed to their grandchildren. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Considerations
California
State tax laws may affect the tax benefits of CLATs.
New York
Specific regulations regarding charitable deductions may apply.
Texas
Estate and gift tax implications differ from other states.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Charitable Lead Trust (CLT)
A trust that provides income to charities for a specified time.
CLAT specifies fixed payments; CLT may allow variable payments.
Charitable Remainder Trust (CRT)
A trust that pays income to the donor or beneficiaries before passing assets to charity.