2023 2024 EduVark > Education Discussion > General Discussion


  #2  
February 4th, 2016, 12:14 PM
Super Moderator
 
Join Date: Mar 2012
Re: CLT Gift Tax

A charitable lead trust (CLT) is the mirror image of a CRT. It provides that the annual annuity stream (lead interest) is to be paid to a qualified charity.

Who should use a CLT?

1. Wealthy clients who want to utilize the current charitable deduction to reduce taxes (for example, in a year with unusually high AGI) should use a grantor CLT but only if they are willing to pay tax on all trust income.

2. Clients who don’t want to give up control of the assets just yet but still want the benefits of the tax deductions.

3. Clients who are willing to forgo current cash flow and whose heirs can wait until the end of the trust term to receive the assets (possibly to meet a dependent’s future needs).

4. Clients who want to take advantage of a low-interest-rate environment.

To the extent the asset can grow faster than the section 7520 rate, more assets will inure to the donor’s heirs at a lower gift tax cost.

5. Clients who want to reduce estate and gift taxes.

Since the gift or estate tax value is determined based on the date the trust is funded, all future appreciation escapes estate and gift taxation.

Gift Tax

Your gift tax charitable deduction is calculated based on the number of years the trust will make payments to Stanford, the payout rate chosen, and the IRS discount rate in the month the trust is funded.

A lower IRS discount rate, a higher payout to Stanford, and a longer charitable term will result in a larger deduction, and in some cases will make the entire gift to your children tax free.

Estate Tax

If you make a CLAT gift while you are living, the transferred assets will be out of your estate, eliminating probate fees and inheritance taxes on those assets.

You may also provide for a testamentary CLAT in your estate plans, which can substantially reduce—or even eliminate—the estate tax on the gift.


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