Ideal Donors & Users for the iCLAT
Since the iCLAT, like all charitable lead trusts, makes ongoing charitable payments on an annual basis (or a more frequent basis) over a specific period of time, it is best suited for givers or supporters who already make regular annual gifts to one or more charities, or who plan to make such gifts in the near future. Of course, in order to immediately benefit from the large accelerated charitable income tax deduction generated by the iCLAT (under §170 under the Internal Revenue Code), one needs to have a high level of adjusted gross income (AGI) in the current year. There are many situations that can cause a giver to have a high level of income in a particular year, click here to learn more about those particular situations. Additionally, if you are one of the 250,000+ givers across the country who have already established your own donor advised fund or private foundation, then you can name your current donor advised fund as the recipient of part or all of the recurring charitable payments from the iCLAT. Click here to learn more about the benefits of coupling an iCLAT with your own donor advised fund.
ANNUAL GIVERS & SUPPORTERS
INDIVIDUAL & FAMILY GIVERS
Charities can greatly benefit from recommending the iCLAT to applicable donors because they will be the ultimate recipient of the iCLAT's recurring charitable distributions. Quite frankly, from the recipient charity's perspective there is really no difference between an iCLAT and traditional charitable lead trusts, which are much more complicated to actually establish and administer. Moreover, for purposes of donor stewardship, Gift Planning Officers and Executive Directors should simply view the iCLAT as nothing more than a large recurring annual commitment gift agreement from an important donor. The key difference is that with an iCLAT, the donor will get an accelerated charitable deduction in the current taxable year that is typically between 85% to 90% of the total sum of charitable distributions from the iCLAT. For this reason, some charities refer to an iCLAT as an enhanced form of pledge agreement (non-binding).
THE ULTIMATE RECIPIENTS OF THE RECURRING iCLAT DISTRIBUTIONS
Sponsoring organizations of donor advised funds (DAF's) have known for years that charitable lead trusts (CLTs) are compelling tools that individuals can utilize to fund donor advised accounts on a significant annual basis. This is particularly the case in the current historically low interest rate environment. However, because traditional CLTs are more complex to establish and administer due to their focus on estate tax savings (which impacts few donors), it is very rare for a CLT to actually be established for such purpose.
The good news for DAF sponsors is that the iCLAT is designed solely for income tax savings purposes and, therefore, not only is it applicable to exponentially more donors, but it is also easier and less expensive to establish and administer. In other words, the iCLAT has fewer barriers to implementation than traditional CLTs. This means that the iCLAT is a much more effective way for a DAF sponsor to make a CLT recommendation to its donors who may have a high level of income in particular year. Contact us to learn more.
DONOR ADVISED FUND SPONSORING ORGANIZATIONS
INDEPENDENT DAFs - NATIONAL DAFs -
CHARITY SPONSORED DAFs - WHITE LABEL/BRANDED DAFs
Many community foundations are aware of charitable lead trusts (CLTs) and how they can be used by their donors to make significant recurring contributions to a donor advised fund, a donor designated fund or other form of gift agreement. This is particularly true in the current historically low interest rate environment. However, because traditional CLTs are more complex to establish and administer due to their focus on estate tax savings (which impacts few donors), it is very rare for a CLT to be established for such purpose. However, since the iCLAT is designed solely for income tax savings purposes, not only is it applicable to exponentially more donors, but it is also much easier and less expensive to establish and administer for the donor. The iCLAT’s fewer implementation barriers creates a more effective way for community foundations to recommend a charitable lead trust to its donors who have a high level of income in particular year. Contact us today to learn more.
LOCAL & REGIONAL COMMUNITY FOUNDATIONS
As the Christian faith so clearly proclaims, all the wealth that we have in our bank accounts and on our balance sheets is God’s – not ours. All Christians are called to be stewards of what He has blessed us with, in varying degrees, amounts and times during our lifetime. Throughout the Bible, Christians are directed to give offerings back to the Lord to further His purposes and for the spread of the Gospel. In many ways, this type of giving on a recurring basis is simply an extension (or fruit) of our faith. This can be done through tithes and offerings to a church, to ministries or simply to those who are in great need. In different ways, Christians are told by Christ and the apostles (in the New Testament) and by the prophets (in the Old Testament) to give on a recurring basis – not just once during our life or at the time of our death.
For this very reason, the annual (or more frequent) charitable payment structure inherent in the iCLAT (and all charitable lead trusts, for that matter) represents the very picture of the recurring giving pattern which we – as Christians, are called to follow. The only difference is that by making those same gifts from an iCLAT, a Christian can receive a large accelerated charitable deduction in the current year that is typically equal to 85% to 90% of total charitable distributions to be paid over the 5, 7, 10, 15, 20+ years of the iCLAT. Just like any other taxpayer, a Christian can benefit from this accelerated charitable deduction when he or she has a high level of adjusted gross income (AGI) in a particular year.
For this reason, all churches and faith-based charities (as well as synagogues and Jewish charitable organizations) should be aware of the iCLAT.
CHURCHES & FAITH -BASED MINISTRIES
THE iCLAT's ANNUAL CHARITABLE PAYMENT STRUCTURE
CLOSELY RESEMBLES TITHES & OFFERINGS
A very large part of charitable contributions in the United States comes from corporations, other forms of business entities and trusts. In many situations, such corporation, trusts and other could greatly benefit from receiving an accelerated charitable income tax deduction in the current year - particularly if the entity already gives to charity on a recurring basis. For this reason, it is important to know that corporations, trusts and other entities can each be the grantor of their own iCLAT. Said another way, you do not have to be a human being to set up an iCLAT, or a traditional CLT or CRT - for that matter. Many times, various entities are used as an integral part of more complex iCLAT planning situations.
GIVERS & SUPPORTERS
CORPORATIONS, LLCs, TRUSTS & OTHER ENTITIES
- MORE INFORMATION TO COME -
IN THE MEANTIME, CONTACT US IF YOU HAVE ANY QUESTIONS
MUNICIPALITIES & LOCAL GOVERNMENT
CITIES, SCHOOL DISTRICTS, COMMUNITY REDEVELOPMENT AGENCIES & INTERLOCAL AGREEMENTS
Financial planners serve a very important role for their charitable-minded clients. They also usually communicate with their clients more frequently than any other advisor, such as an accountant or estate planning attorney. For this reason, they are usually the first advisor to be aware of a client's potential transaction which might lead to a large taxable event. Additionally, most charitable-minded clients have significant IRAs, 401ks, and other forms of retirement assets (with tax-deferred assets), which their financial advisor has helped grow over the years. Therefore, having a good working knowledge of the significant income tax savings benefits of the iCLAT to their charitably-minded clients can add great value to the relationship that he or she has with such clients. Strengthened client relationships rooted in charitable planning recommendations are always an effective way for a financial advisor to further differentiate his or her financial services from those of other advisors that may be working with the client.
A very practical example of how the iCLAT could be effectively recommended to any charitable-minded client is in the area of ROTH IRA/401k Conversion. Quite simply, the large accelerated income tax deduction generated in the current year by the iCLAT can be used to greatly reduce the income tax liability from a ROTH IRA Conversion. If you are a financial advisor that has already initiated ROTH IRA Conversion discussions with your clients, then the iCLAT may be the solution to help your clients overcome the problem of the resulting immediate income tax liability. This would particularly be the case if the client already gives $10,000 or more on an annual basis to his or her church and favorite charities. Quite frankly, the iCLAT could also be recommended to clients who are faced with large RMDs from traditional IRAs/401ks, or even a a beneficiary from an "Inherited" or "Stretch" IRA.
FINANCIAL PLANNERS & OTHER ALLIED PROFESSIONALS
FINANCIAL ADVISORS, ACCOUNTANTS &
ESTATE PLANNING/TAX ATTORNEYS
An "iCLAT" is simply a trust that makes annual distributions to charity for a specified term of years and then, at the end of the term, distributes the remaining trust assets back to its grantor (i.e. the donor or the client). For legal and IRS purposes, an iCLAT is known as a "reversionary" charitable lead annuity trust, which is treated as a "grantor trust" for federal income tax purposes. Importantly, an iCLAT has nothing to do with saving estate taxes, or estate planning for that matter. Think of an iCLAT as an "Income Tax Savings CLAT"
WHAT is an iCLAT?
HOW can an iCLAT generate such large IMMEDIATE TAX SAVINGS?
WHO can most benefit from an iCLAT?
WHY is 2020 the best year to create an iCLAT?
An iCLAT will work best for someone regularly gives at least $10,000 per year to one or more charities (including their place of worship)
(1) has a sudden current year increase in "ordinary income" of $250,000 or more;
(2) has a high current level of income that is expected to end within the next two years from retirement, the end of a lucrative contract, or other reasons.
The IMMEDIATE YEAR 1 charitable tax deduction generated by an iCLAT is equal to the "present value" of the it's annual payments to charity - using the IRS §7520 interest rate, which is released each month. Since the IRS §7520 interest rate is currently at its historic low of 0.8% (May 2020), the resulting charitable tax deductions from iCLATs have never been higher than they are right now! Use the iCLAT Calculator Tool to instantly determine the IMMEDIATE income tax deduction that a particular iCLAT can generate for you, your donor, or your client.
4 REASONS WHY:
As a result of the recent doubling of the standard deduction (effective 1/1/2018), it is harder than ever to receive any additional tax savings for annual charitable gifts under $24,800/year (married persons), $12,400/year (single person) and $18,650 (heads of household).
The reasonable probability of more legislative restrictions to the charitable deduction in the near future.
The continued suspension of the overall limitation on itemized deductions for high-income individuals (the so-called "Pease Limitation") until December 31, 2025.