3.5.4 Lead Annuity Trust

Private Letter Rulings

PLR 200011012 Annuity Lead Defective Grantor Trust:   The taxpayers in this trust plan to fund an annuity lead trust, which is intended to qualify for income, gift and estate tax deductions and also last for 30 years. In contrast to remainder trusts, which are limited to no more than 20 years under Sec. 664 and may not pay less than 5%, lead trusts may be of any duration and may pay out any percentage amount.

PLR 200029033 Children May Select Charities for Annuity Lead Trust:   Donor X created a charitable annuity lead trust with shares 1, 2 and 3. A bank is trustee of the lead trust. The lead trust pays a graduated formula, which is a permissible interpretation of the annuity requirement rules. The graduated formula is more frequently found in grantor annuity trusts but may be used in a non-grantor lead trust. The lead trust pays 3% for the first two years and then an annuity amount that is increased by a factor of 1.133 in succeeding years.

PLR 200241048 No Self-Dealing When CLAT Makes Payments to Disqualified S Corp:   Taxpayer created a charitable lead annuity trust as part of his estate plan. Pursuant to the trust document, the CLAT will make annual payments to private foundation. At the end of the trust term, the remaining assets will be distributed to taxpayer's children.

PLR 200516005 Children Can Choose Charitable Beneficiaries:   Howard and Wendy established an annuity lead trust with children Ann, Bob, and Carol as remainder beneficiaries. Ann, Bob, and Carol were also to serve as trustees of the lead trust, along with Dave. The lead trust document established that the trustees would choose one or more qualified charities to receive the annuity payment. It also provided that if on or before 15 days prior to the close of any year, the trustees have not chosen a qualified charity, the annuity payment would be made to Foundation, if Foundation was a qualified charity. The trust defines a qualified charity as one described in Secs. 170(c) and 2522(a).

PLR 200747001 CLAT is a Completed Gift with No Excess Business Holdings:   Spouses H and W propose to create a charitable lead annuity trust (CLAT) to pay to a qualified public charity a fixed percent annually for the lesser of five years or the death of the second spouse.

PLR 201433021 CLATs Produce Charitable Deduction:   Foundation was created through a trust agreement by the Son of Founder A and Founder B (Founders). Under the Founder’s estate plan, the residuary estate of the first spouse to die is to pass to a marital trust for the survivor.

PLR 201933007 CLAT May Produce Estate Tax Deduction:   A trust's authorized representative requested an IRS ruling as to whether 1) the use of a formula set out in Grantor's established revocable trust (Revocable Trust) satisfies the IRS requirement that a guaranteed annuity be paid over a "specified term" and 2) the surviving Grantor or Spouse's estate will be entitled to an estate tax deduction for the present value of the annuity interest donated to charity.

PLR 9819031 Corporate Recapitalization Funds Lead Trust:   The IRS, in this ruling, stated that a corporate recapitalization did not constitute a taxable dividend distribution and the "new stock" could be used to fund a charitable lead annuity trust.