Probate & Trust Law Section Conference Manual ... - Minnesota CLE

3. The estate planning benefit of a CLT arises when the assets held by the
trustee in the trust grow at a faster rate than the IRC § 7520 rate.
4. GST Tax. If a donor gives property to grandchildren or within trusts with
grandchildren as potential beneficiaries, the donor must pay generationskipping
transfer (“GST”) tax on that gift, with certain exemption amounts
available. If the donor names grandchildren as remainder beneficiaries of a
CLT, the donor will want to allocate GST exemption to the trust because
payment of trust assets to grandchildren is a GST taxable event.
C. Types of CLTs.
a. A donor may allocate his or her GST tax exemption to the present
value of the remainder interest in a CLUT at the time of the trust’s
creation. IRC § 2642(a)(2)(B).
b. Under IRC § 2642(e), the allocation of GST tax exemption to a
CLAT cannot be finally determined until the end of the trust term.
Rather the amount of exemption allocated at the beginning of the
trust term is deemed to grow with the trust at the IRC § 7520 rate
in effect at creation, and at the end of the trust term, that
augmented exemption amount is compared with the actual trust
remainder to determine how much of the remaining assets will be
exempt from the GST tax.
c. If a donor plans to name grandchildren as remainder beneficiaries
of a CLT, the only way to be certain that the trust will not be
subject to at least some GST tax is to use a CLUT rather than a
CLAT.
1. Annuity vs. Unitrust.
a. If the trust provides for a fixed payment each year to charity, it is a
charitable lead annuity trust (“CLAT”). The trust may vary the
annuity over the term of the trust as long as the variations are
certain at the time of trust creation.
b. If the trust provides for a payment to charity each year equal to a
fixed percentage of the value of the trust property determined
annually, the trust is called a charitable lead unitrust (“CLUT”).
c. The CLT has no minimum or maximum payout requirement.
2. Grantor vs. Non-grantor.
a. A non-grantor CLT is a trust that is not considered owned by the
donor for income tax purposes. The estate planning benefit of the
non-grantor CLT is transfer tax savings. Under IRC § 642(c)(1),
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