IRS PLR Approving CLAT Structure Provides Option for High-Net Worth Estate Planning, September 12, 2019

The IRS has recently released a private letter ruling approving a charitable lead annuity trust (CLAT) structure that may prove useful in estate planning for high net worth clients. In the case at issue, the taxpayer proposed to set up a revocable trust where the trust would first pay certain debts and expenses and then distribute the trust assets to other individuals and trusts if the taxpayer predeceased his spouse. Should the spouse die first, the trust would have paid the relevant debts, made distributions to individuals and trusts and then transfer the remaining assets to the CLAT, which would then pay a 5% annuity to the charity based upon the initial trust's fair market value. The IRS approved this structure even though in most cases, the CLAT must have a payout stream that lasts a predetermined number of years to qualify for tax preferential treatment (deduction of the present value of annuity payments for the estate). Here, the IRS determined that it would eventually be possible to calculate that specified payout term once the CLAT was funded from the revocable trust after payment of debts, expenses and distributions to other beneficiaries. For more information on charitable lead trusts, visit Tax Facts Online.