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What exactly is the "iCLAT" in the compelling current planning world of charitable lead trusts?

December 12, 2017

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The iCLAT - The Simple Charitable Lead Trust Alternative Which Annual Givers With $250K+ AGI (and their Valued Professional Advisers) Should Strongly Consider

December 23, 2017

 

 

Since the iCLAT, like all charitable lead trusts, makes ongoing charitable payments on an annual (or a more frequent basis) over a specific period of time, the iCLAT is best suited for givers  who already make regular annual gifts to one or more charities, or who perhaps plan to make such recurring gifts in the near future.  Remember, the historically low IRS §7520 interest rates continue to allow the iCLAT to generate a very large "accelerated" and immediate 170(c) charitable income tax deduction typically ranging from 85% to 95% of the total payments to charity, depending on the duration of the iCLAT's charitable term.  For example, a simple (and commonly structured) 10 year iCLAT which provides charitable payments of $25,000 per year, would generate a current 170(c) charitable deduction in excess of $224,000 (using the 2.2% §7520 rate for October which is still available through the end of 2017).  This $224,000 170(c) charitable deduction is 89.6% of the total $250,000 payments that the iCLAT will make to charity over its 10 year term!   The 2.6% §7520 rate for December 2017 and January 2018 will still generate a §170(c) deduction in excess of $219,500, which is still 87.8% of the total $250,000 payments that the iCLAT will make to charity over its 10 year term!

 

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), the giver needs to have a high level of adjusted gross income (AGI) in the same taxable year.  In my experience, I tend to find that $250,000 is the typical AGI threshold before a donor (and his or her advisers) will give any serious consideration to an iCLAT, although I have drafted and handled the funding of iCLATs for donors with less than $250,000 AGI.  The truly innovative part of the iCLAT is that it is a stripped down version of a traditional CLT that makethe donor to UNLOCK THE POWER OF THE CLT'S COMPELLING INCOME TAX SAVINGS, without all the "unnecessary baggage and potential pitfalls" inherent in traditional wealth transfer (non-reversionary) CLTs.  As many you already know, the federal estate tax is not even relevant to 99.9% of the population (particularly with the recent enactment of H.R. 1).  And in my frequent experience with some of those families in the 0.01% of the population who need to plan for the "potential" federal estate tax, any such "potential" federal estate tax savings are almost always a very distant 2nd priority in comparison to the MUCH MORE RELEVANT "FEDERAL & STATE INCOME TAX" SAVINGS created by a charitable lead trust!!!!!  This is often despite all the over-zealous emphasis that we (yes, "we") tax attorneys and allied estate planning professionals put on the less important Subtitle B of the Internal Revenue Code (a/k/a the federal estate tax, gift tax and generation transfer tax.) 

 

As you all know, there are many common situations which can cause a giver to have the requisite high level of income in a particular year, click here to learn more about those particular situations.  Additionally, if you (or one of your clients) 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 easier use your current donor advised fund as the recipient of part or all of the recurring charitable payments from the iCLAT.   Click here for an illustration of how an iCLAT can so easily be couple with your own donor advised fund.  Click here for several forms that can be completed on an entirely anonymous (and free) basis to determine whether the iCLAT could be a viable INCOME TAX SAVINGS tool for you to further consider.