You create a CLAT by transferring cash, securities or interests in real estate, LLCs or partnerships, to an irrevocable trust during your lifetime or at your death. A charity or your private foundation receives fixed annuity ( principal and interest) payments annually from the CLAT for the number of years specified in the CLAT. At the end of that term, assets in the CLAT are transferred to non-charitable beneficiaries (typically children or a trust for children) specified in the CLAT.
There are income tax charitable deductions available either upon formation, or annually as income is paid to the charity or foundation, depending upon whether the trust has been created as a “Grantor” trust or as a “Non-Grantor” trust.
Another advantage of the CLAT is that it allows a “discounted” gift to family members. The value of a gift is determined at the time the gift is made. The family member must wait for the charity’s term to expire; therefore, the value of that interest is discounted for the “time cost” of waiting.
When the assets in the CLAT are transferred to the family member upon the expiration of the term, any appreciation on the value of the assets is free of either gift or estate tax.