Advantages of iCLATs
(a/k/a Reversionary CLTs)
Compared to Traditional
Charitable Lead Trusts
iCLATs are SIMPLER to explain, establish and administer compared to traditional CLTs because their sole focus is to save income taxes - not estate taxes. iCLATs are not only easier for the client (or donor) to understand, but they're also much easier for their respective financial planner, accountant and estate planning attorney to understand as well. For example, (i) iCLATs will not disrupt the client's existing current estate planning documents, (ii) any new accounts owned by an iCLAT can simply be held and managed by the client's current financial planner; and (iii) since iCLATs are "grantor trusts" for income tax purposes they will not complicate the client's tax filings, rather iCLATs only have to file an "informational" Form 1041 and a Form 5227 with the IRS each year.
Less Time & Expense
With iCLATs, the client or donor can, and almost always does, serve as the sole trustee. This provides a greater level of retained control to the client or donor, in comparison to traditional charitable lead trusts. This is because the retained control traps of IRC §2036, which are significant concerns with traditional CLTs, are completely irrelevant with iCLATs. In other words, there are fewer concerns and greater flexibility during the administration of iCLATs compared to traditional CLTs, which is very important a happier client or donor is always a good thing - particularly if something unexpected occurs during the term of an iCLAT.
iCLATs are applicable to many more clients and donors compared to traditional CLTs because iCLATs have absolutely nothing to do with saving future estate taxes - by design. iCLATs are used for the sole purpose of saving current income taxes - plain and simple. Think about it, the vast majority of your clients and donors have to pay income taxes - every single year. Very few, if any, have to worry about estate taxes because they currently only impact the very wealthiest of high net worth families (the estate tax unified credit exemption amount in 2020 $11,580,000 per person & $23,160,000 per married couple). Saving current income taxes is almost always a higher priority to clients and donors than saving potential estate taxes in the future. Therefore, iCLATs will not only be applicable to more of your clients and donors than traditional CLTs, but they will also be of much greater interest to them as well!
Compared to traditional CLTs, iCLATs simply have fewer planning issues for the client or donor to understand and discuss with their attorney, financial planner and/or accountant. Since the sole purpose of an iCLAT is to save immediate income taxes, it is easier for all involved to determine whether an iCLAT is beneficial or not for the client or donor. For clients or donors, and for their advisors, time is money, so less time involved always means less expenses. iCLATs are usually designed, signed and fully funded in less than a month. Additionally, the Form 5227 and Form 1041 that iCLATs must file with the IRS each year are much easier to prepare compared to those for traditional CLTs. This results in much lower annual administration costs compared to traditional CLTs. TAKE A LOOK AT SEVERAL EXAMPLES