Article on CLAT Structures
In this article, the authors outline the benefits of Charitable Lead Annuity Trusts (“CLATs”) as an estate planning tool. Special attention is focused on designing CLATs without level payment streams, but with “back loaded”or “shark-fin” annuity patterns that “zero-out” the value of the gift of the remainder interest and leverage historically low interest rates.The authors discuss the tax advantages and disadvantages if the CLAT isa non-grantor or grantor trust, if the CLAT is inter-vivos or testamentary,and if the charitable lead interest is a term of years or based upon a measuring life. The article outlines a number of technical issues that must be considered in the design of a CLAT, including the tricky endeavor of choosing which retained powers will provide grantor trust status without causing the assets of the trust to be includible in the estate of the grantor,and the income tax consequences of a termination of grantor trust status.In addition, they compare CLUTs and CLATs today if the remainder beneficiaries are skip-persons for GST tax purposes, and they review the application of the private foundations rules, the investment implications of a back-loaded annuity CLAT, and the planning implications surrounding the choice of different charitable and non-charitable beneficiaries.They conclude the article with a number of planning examples that illustrate the flexibility now afforded estate planners, including CLATs holding private equity interests, concentrated stock positions, life insurance policies, and family limited partnerships holding commercial real property or publicly-traded securities.