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| ECLAT OVERVIEW | |
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| Realizing a significant increase in one’s income is a good thing. However, this good fortune can also create some challenges. The reality is that federal income taxes will have to be paid. It is also likely that the recipient could find himself or herself in a higher tax bracket as a result of a large bonus. | |
Enhanced
Charitable Trust: The Enhanced Charitable Trust is a unique charitable gifting strategy that uses life insurance to: —Transfer significant wealth to loved ones — Create a sizeable federal charitable income tax deduction — Make a meaningful contribution to a charitable organization |
What is different about the Enhanced Charitable Trust? (CLAT) An Enhanced Charitable Trust is a type of charitable lead annuity trust CLA T that will provide annual income and a sizeable deferred amount for the charity, with a remainderman amount going to the trust beneficiary. Unlike the more traditional CLA T, the Enhanced Charitable Trust strategy provides the charity with a modest stream of current annual income. The majority of the charitable contribution is a lump-sum payment that is received at the termination of the trust, funded by a life insurance death benefit. |
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The recipient of the large non-recurring taxable item makes a gift of all or a portion of that item to a charitable lead annuity trust. In exchange for the charitable gift, the grantor will receive a federal charitable income tax deduction. The CLA T uses the majority of the cash (between 85-90%) to purchase a life insurance policy, insuring the life of the grantor or other individual. With the remaining 10-15%, the CLA T will purchase an income-producing product (such as municipal bonds) to provide the annual income to the charity. Upon the death of the insured, a portion of the life insurance policy proceeds is paid to the charity with the remaining amount distributed to the non-charitable trust beneficiary. Any other remaining assets in the CLA T will also be paid to the non-charitable trust beneficiary. |
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— Possibly reduce the impact of income taxes and estate taxes from a large one-time taxable event or lump-sum distribution from a qualified plan or IRA — Benefit a charity you believe in by providing annual income and a future gift — Pass on wealth to your loved ones that is federal income tax free and estate tax-free — Flexibility to create both a family and charitable legacy, customized to reflect your priorities |