CHARITABLE LEAD ANNUITY TRUST (CLAT)
Back to GlossaryDefinition
A trust that makes a fixed number of annual payments, calculated as a percentage of the asset value as of the date of the grantor’s gift into the trust, to charity. At the end of the lead period, the remaining assets are distributed to non-charitable remaindermen.
Summary
A Charitable Lead Annuity Trust (CLAT) is a special type of trust where a wealthy person puts assets into the trust, which then makes fixed annual payments to charity for a set number of years. The payment amount is determined as a percentage of the original asset value when the trust was created, not the current value. After the charitable payment period ends, whatever assets remain in the trust go to the grantor's chosen beneficiaries (often family members). This arrangement allows the grantor to provide ongoing charitable support while potentially passing wealth to heirs with reduced gift or estate tax consequences.
Usage Context
This term is crucial when studying advanced estate planning strategies, charitable giving vehicles, and tax-efficient wealth transfer techniques. It's particularly important when comparing different types of charitable trusts and understanding how wealthy individuals can achieve both philanthropic and family wealth goals simultaneously.
Common Confusions
- Confusing CLAT with CLUT - CLAT pays a fixed amount while CLUT pays a percentage of current asset value
- Thinking the charity gets the remaining assets at the end (they don't - the remaindermen do)
- Assuming the annual payments adjust for inflation or investment performance (they don't in a CLAT)
- Believing the grantor can change the charitable beneficiary during the trust term
