CLAT: Charitable Lead Annuity Trust

A powerful tool for tax reduction, legacy building, and strategic giving.

What is a CLAT?

A Charitable Lead Annuity Trust (CLAT) is a sophisticated yet accessible trust strategy used to reduce income and estate taxes while fulfilling charitable goals. It works by transferring assets into an irrevocable trust that pays a fixed annual amount to a designated charity for a set period — typically 10 to 30 years. Once the charitable term ends, whatever is left in the trust — including any growth — passes to your heirs or beneficiaries, often tax-free.

In short, it’s a tax-smart way to support causes you care about today, while setting up your family for financial benefit tomorrow.

Who are CLATs for?

A CLAT isn’t just for billionaire philanthropists with foundations — it’s a highly strategic tool for entrepreneurs, high-income earners, and business owners who want to reduce taxes and do good at the same time. If you’re facing a major income event, planning your estate, or looking for smarter charitable giving strategies, a CLAT could be a fit.

We typically recommend CLATs to:

  • Business owners exiting or selling their company
    Liquidity events often come with massive tax hits. A CLAT helps reduce the immediate income tax burden while shifting assets out of your estate — and still allows you to direct charitable gifts on your terms.

  • Professionals and earners with consistent income
    For those looking to reduce annual tax liability while supporting causes they care about, a CLAT offers structure, control, and long-term impact.

  • Families focused on legacy and efficiency
    If your estate is projected to face federal or state estate taxes, a CLAT lets you redirect a portion of your wealth to charity now and transfer more to your heirs later — often with a much lower tax bill. Ultimately, a CLAT can reduce estate tax exposure and pass more wealth forward, all while funding charitable giving on your own terms.

  • Charitably inclined individuals seeking control and efficiency
    CLATs offer a predictable, intentional method to give over time, while retaining strategic financial advantages. You’re not just giving — you’re doing it in a way that’s structured, efficient, and beneficial to your legacy..

Why do CLATS Matter?

CLATs offer an elegant solution to a common challenge: how to reduce your current tax burden while still planning generational wealth transfers. They provide:

  • When you fund a CLAT, you can claim a significant income tax deduction based on the present value of the future payments going to charity. This deduction can offset large income events, such as business sales, bonuses, or capital gains, giving you real relief when you need it most.

  • Because the trust is structured to make annual payments to a charity, the IRS discounts the value of what will eventually go to your heirs. That means you can transfer more wealth — sometimes millions — with minimal or zero gift and estate tax exposure.

  • While the charity receives a fixed annuity, the underlying assets inside the trust can continue to grow. Any appreciation that occurs during the trust’s term avoids estate taxes and can pass to your heirs tax-efficiently, maximizing what you leave behind.

  • CLATs create a guaranteed stream of income for the causes you care about most. Whether it’s your alma mater, church, or family foundation, your giving becomes consistent, intentional, and structured — and you maintain control over which organizations receive the support.

How does a CLAT work?

First, there are two ways this strategy can work: the CLAT and the E-CLAT. While both rely on the same core principle — directing payments to a charitable organization for a period of time — they’re designed for different goals. A CLAT is often used in estate planning to transfer wealth efficiently to heirs, while an E-CLAT is typically structured to create immediate income tax deductions that can offset high current earnings. Understanding which one fits your needs depends on whether you're solving for estate concerns down the road or seeking a powerful deduction strategy today.

CLAT

A Charitable Lead Annuity Trust (CLAT) is a powerful, irrevocable trust structure designed to serve two goals at once: support charitable causes now while preserving wealth for the future. During a set period the CLAT distributes fixed annual payments to a qualified charity of your choice. Once that term concludes, whatever is left in the trust — including any growth — is passed on to your heirs or returned to you, depending on how the trust is structured. Because of how the IRS values the initial gift, this transfer often happens with minimal gift or estate tax consequences, making it a highly efficient tool for long-term wealth and legacy planning.

Here’s how a CLAT works, step by step:

  1. You fund the trust with assets such as cash, appreciated securities, or income-generating property.

  2. The trust makes annual, fixed payments to a charity for a term you select — usually 10, 20, 30 years.

  3. You receive a charitable deduction in the year the trust is funded, based on the total projected payments to charity.

  4. Any growth inside the trust beyond what’s needed to fulfill the charitable payments passes to your heirs tax-efficiently at the end of the term.

Best for: Long-term estate planning, reducing estate tax exposure, and building a philanthropic legacy while transferring wealth efficiently to heirs.

E-CLAT

An Enhanced Charitable Lead Annuity Trust (E-CLAT) takes the core structure of a traditional CLAT and retools it to solve for immediate income tax burdens. Rather than focusing solely on legacy or estate planning, the E-CLAT is designed for business owners, professionals, and high-income earners who want a substantial tax deduction this year. Structured as a non-grantor trust, it allows you to claim a large upfront charitable deduction against active income while still retaining long-term control over how remaining assets are distributed. This structure blends philanthropy with real-time tax relief, making it a smart move for those who need deductions now — not decades from now — and want to align tax strategy with their income cycle.

Here’s how an E-CLAT works:

  1. You make an initial contribution to a non-grantor CLAT structured to meet income tax deduction rules.

  2. The trust commits to paying a charity annually, just like a traditional CLAT — but the trust is structured to qualify for current income tax deductions, not just estate/gift tax savings.

  3. You receive an immediate income tax deduction (often used against active income in the same tax year).

  4. The remaining assets, after the charitable term, are retained or passed depending on the trust design — often aligned with business exit planning or personal liquidity strategies.

Best for: Business owners, professionals, or high earners with strong current income looking for a large deduction today — not just future estate tax benefits.

The Tools Behind the Layers

Each TEL strategy has its own role. When layered, they multiply value.

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