The Internal Revenue Service has posted an anonymized version of a letter ruling concerning a charitable lead annuity trust (CLAT).
A CLAT is a vehicle used in estate planning. A CLAT letter ruling could be of interest to financial professionals who are using life insurance, annuities or other instruments to help wealthy clients with estate planning.
The taxpayer who is setting up the CLAT at the heart of the new IRS letter ruling plans to create a revocable trust.
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If the taxpayer dies before the taxpayer’s spouse, then the trust is supposed to pay specified debts and expenses, then distribute property and cash to other individuals and trusts.
If the spouse dies first, the trust is supposed to pay specified expenses and make specified distributions of property and cash to people and trusts. The trust is than supposed to push the assets left over into a CLAT.
The CLAT is supposed to pay a charity an annuity amount equal to 5% of the fair market value of the initial trust estate.
A CLAT is supposed to have a benefit stream that lasts a specified number of years.
Leslie Finlow, a senior technician reviewer at the IRS Office of Associate Chief Counsel for passthroughs and special industries, writes in the letter ruling that the IRS will treat the CLAT as having a benefits payment term of a specified term.