Everything you always wanted to know about charitable lead trusts but were afraid to ask.

By Kathleen Stephenson and Lisa B. Petkun

Let’s take our earlier example of a transfer of $500,000 to a CLAT that is to run for 10 years with an applicable federal rate of 5 percent.

If the annual annuity paid to the charitable organization is $63,216, the value of the remainder interest at the time the trust is created is zero. However, if the trust assets realize an annual return of 8 percent, the non-charitable remainder beneficiaries will receive $127,747 at no gift-tax cost to the settlor. And, of course, the charity will have received $632,160!