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  • Reggie Blackwell

Providing for Charities and Your Family During These Uncertain Times

Many PMG Intrinsic clients have charitable intent and wish to help worthy charitable organizations and their communities. A simple technique is to provide a charitable contribution to a registered 501(c)(3), receive a corresponding in-kind donation letter, and report the deduction on the personal tax return. But such a tactic does not help one’s family in the future; nor, does it really amplify the benefits of the tax code. Balancing a desire to aid charities in these uncertain times, many clients have also shared an increased desire for advanced estate planning. Fortunately, with interest-rates at an all-time low, PMG Intrinsic has been steering its clients to Charitable Lead Annuity Trusts (“CLAT”) that serve in furthering a client’s charitable intent, while ensuring that a large portion of the trust is transferred to a client’s beneficiaries in a tax advantaged manner.

Reasons why our clients execute CLATs:

  1. Desire to benefit a charity.

  2. Ability to receive an income tax deduction which can help reduce a large tax bill.

  3. Lock in asset values for estate and gift tax purposes during a low interest rate environment, allowing beneficiaries to receive any appreciation free of tax.

  4. Ability to further reduce income and estate taxes if the trust is structured as a grantor trust.[1]

  5. Flexibility in using a CLAT to fund a family foundation over a period of time.

A CLAT entities a designated charity (or charities) for periodic payments from assets given to the trust. The payments may be in the form of an annuity payment which is a specified fixed amount paid annually.[2] PMG Intrinsic’s clients have formed both inter-vivos charitable lead trusts, which are formed at lifetime, and testamentary charitable lead trusts, which are formed at death. Typical steps for a CLAT:

  1. The client will fund the trust and determine how long it will last.

  2. Structure the CLAT to determine if it is either a grantor, or non-grantor trust.

  3. Determine the amount of dollars to be passed to the charity each year. If the assets in the CLAT grow more than the mandated rate under Section 7520 (which as of August 2020 is less than .5%), then the surplus at the end of the trust-term may pass to the beneficiaries tax-free.

CLATs are powerful vehicles that allow our clients to give back to the community while maintaining a legacy. If you wish to assist charities during these times, provide for your family, and minimize your tax burden, please consult PMG Intrinsic about the benefits of a CLAT.

[1] A non-grantor charitable lead trust is taxed as a trust for income tax purposes; therefore it is taxed on all of its net undistributed income and on all capital gains. The trust will likely receive a charitable income tax deduction for the payments made to charity each year.

[2] A client may choose instead to have the trust make unitrust payments which are payments determined by a specified percentage that varies depending on the value of the trust at any given year.

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