Charitable Trusts

A charitable lead annuity trust, or CLAT, is similar to a charitable lead trust, except that the assets are invested in an annuity rather than stocks, bonds, real estate, or other assets.

The creator of the trust gives the assets to an annuity provider, who acts as the trustee, and who agrees to provide fixed income to one or more charitable organizations during the life of the beneficiary. Once the beneficiary passes away, the remaining assets are given to one or more people specified by the creator of the trust, most often the heirs of the beneficiary. Alternatively, the annuity may be set up to last for a set term of years.

This structure allows for tax-free income to be provided to charities during the lifetime of a beneficiary, while still providing the nest egg to the beneficiary's heirs once he or she passes away. As with the charitable lead trust, the annuity version resembles in many ways the lending of the assets in the trust corpus to the charity. The charity then invests them in an annuity in order to draw income from the assets for the lifetime of the trust.

Charitable lead annuity trusts are particularly complex, therefore you should consult a qualified attorney and accountant before deciding to set one up.

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