* The conversion of a nongrantor charitable lead annuity trust
(CLAT) to a grantor CLAT was not a taxable transfer to the grantor, but the grantor was not thereby entitled to a charitable deduction for income tax purposes, the IRS ruled in a letter ruling.
The Service has privately ruled that the sale of assets, which were pledged as collateral for a promissory note to the family's charitable lead annuity trust
, to a limited liability company would not constitute self-dealing so long as the value of the collateral remained as required under the terms of the note, and would not give rise to tax liability under IRC Section 4941 to the CLATs, related family members, the estate, or the marital trusts.
The trust in turn will provide the charity with a guaranteed annuity (i.e., a charitable lead annuity trust
), or annual payments equal to a fixed percentage of the fair market value of the trust property as annually recomputed (i.e., a charitable lead unitrust).
Typically funded with at least $1 million by donors with a net worth of $10 million or more, a charitable lead annuity trust
makes fixed annual payments to a charity for a term of years, or until the donor dies, with the remaining assets going to the donor's heirs, typically children.
Oceanside, NY, March 01, 2018 --(PR.com)-- The Louis Feil Charitable Lead Annuity Trust
has made a $1.5 million donation to South Nassau Communities Hospital to help relocate the hospital's cancer program services and departments to a dedicated, centralized comprehensive cancer center that will be based on the hospital's main campus in Oceanside (NY).
This is and other strategies explored in my January feature -- the charitable lead annuity trust
, gifts of life insurance policies, donor-advised funds, among others -- can effectively realize planning objectives.
Through the creation of a charitable lead annuity trust
, the donor's favorite charity can count on a specific dollar amount coming into the charity for a term of years, allowing the charity to do large capital projects or establish an ongoing program supported directly by the annuity payment.
Example: Assume Jack Ryan donates 500 acres of land in Arizona worth $1,000,000 to a charitable lead annuity trust
. The trust will pay to one or more specified charity(ies) a fixed 7% annuity for a 10-year period.
The 2015 gifts include a $512,000 donation from The Louis Feil Charitable Lead Annuity Trust
, who requested that the funds go toward renovating two operating room suites at the hospital's Oceanside campus.
Other techniques favored in the current low interest rate environment include the intentionally defective grantor trust and, for the philanthropically inclined, the charitable lead annuity trust
. Herbert Daroff, a partner at Baystate Financial Planning, Boston, Mass., says he often recommends these techniques for moving asset gains outside of the grantor's taxable estate.
A charitable lead annuity trust
(CLAT) may be established as an inter vivos trust during the grantor's life or as a testamentary trust that is created upon the grantor's death.
In brief, a donor would establish a substantial charitable lead annuity trust
(see details at Chapter 14) which would provide income to charity for the life of the annuitant, with the principal passing to the donor's heirs at the termination of the trust.