Charitable Lead Annuity Trust (CLAT) Calculator

Not tax or legal advice. CLAT design requires a qualified estate attorney and IRS actuarial computations. This illustrates the planning concept and gives order-of-magnitude estimates for structuring conversations.

A charitable lead annuity trust is the mirror image of a CRT: charity receives income first; your heirs receive the remainder. Transfer assets to the trust, fund a multi-year annuity stream to your charity of choice (or your donor-advised fund), and pass all appreciation above the §7520 hurdle rate to heirs — potentially with no gift tax. For $30M+ families who want to support charity AND transfer wealth to the next generation, the CLAT arithmetic can be more powerful than writing a check.

What is a Charitable Lead Annuity Trust?

A CLAT is an irrevocable split-interest trust with two beneficiaries:

1. Charity (the "lead" interest) — receives a fixed dollar annuity each year for the trust's term. The charity can be a public charity, private foundation, or your donor-advised fund.
2. Heirs (the "remainder" interest) — receive whatever remains in the trust at the end of the term.

When you fund the trust, the IRS computes the present value of the charity's annuity stream using the §7520 rate — this becomes your gift tax deduction under IRC §2522(c)(2)(B).¹ Set the annuity high enough (a "zeroed-out" CLAT) and your taxable gift is $0. If the trust's investments outperform the §7520 hurdle rate, the surplus appreciation passes to heirs gift-tax-free — regardless of how much the trust grew.

CLAT vs. CRT: mirror images

How the gift tax deduction works

For an inter-vivos non-grantor CLAT, the gift tax deduction equals the IRS-computed present value of the charitable annuity stream, using the §7520 rate as the discount rate:¹

Charitable deduction = Annual annuity × PVAF(§7520 rate, N years)

Where PVAF = (1 − (1 + §7520 rate)^−N) ÷ §7520 rate

At May 2026's 5.0% §7520 rate⁴, a 10-year CLAT paying $500,000/year to charity:

• PVAF(5%, 10) = (1 − 1.05⁻¹⁰) ÷ 0.05 = 7.722
• Charitable deduction = $500,000 × 7.722 = $3,861,000
• On a $5M transfer: taxable gift = $5M − $3.861M = $1,139,000

Higher §7520 rates increase the charitable deduction — the IRS assumes the charity's annuity stream is worth more at a higher discount rate. This is the opposite of a GRAT, where higher §7520 rates are harder to beat. At May 2026's 5.0% rate, CLAT deductions are meaningful; at the 0.8% rates of 2021, they were extraordinary.

The zeroed-out CLAT

A zeroed-out CLAT sets the annual annuity precisely so that the PV of the charitable stream equals 100% of assets transferred — taxable gift is $0. Every dollar of trust appreciation above the §7520 hurdle then passes to heirs with no gift tax.

At May 2026's 5.0% §7520 rate, a 10-year zeroed-out CLAT on $5,000,000 requires an annuity of:

• $5,000,000 ÷ 7.722 = $647,600/year to charity
• At 7% annual trust growth: heirs receive approximately $888,000 — with no gift tax
• At 10% annual trust growth: heirs receive approximately $2,100,000 — still no gift tax
• At exactly 5.0% growth (= §7520 rate): heirs receive $0 — the hurdle rate is the breakeven

The CLAT leverage effect: the gift tax deduction is locked in at funding. If the trust grows at 7% while the §7520 rate is 5.0%, the 2% annual spread accumulates as gift-tax-free wealth for heirs over the full term. For a 20-year trust, even modest outperformance creates substantial remainder.

Grantor CLAT vs. non-grantor CLAT

Non-grantor CLAT (most common):

• Trust is a separate tax entity — the donor is not treated as owner for income tax
• No income tax deduction for the donor at funding
• Gift tax deduction for the PV of the charitable lead interest at funding
• Trust pays its own income taxes; annual charitable distributions generate offsetting §642(c) deductions at the trust level

Grantor CLAT (specific use cases):²

• Donor treated as owner for income tax — receives an income tax deduction for the PV of the charitable stream in year 1 (§170(f)(2)(B))
• Donor also pays income taxes on all trust income each year — effectively making additional tax-free gifts to the trust by paying its tax liability
• Can be efficient when the donor is in a very high-income year with significant taxable income to shelter, and the trust holds high-return assets
• Requires careful structuring; typically used for large trusts ($10M+) with a specific income tax offset goal

OBBBA (July 2025) permanently raised the estate and gift tax exemption to $15,000,000 per individual / $30,000,000 per married couple, indexed to inflation from 2027.⁵ This reduces the number of transfers that trigger gift tax, but for families with taxable estates above the exemption — the target market for CLATs — the structure remains highly relevant.

When a CLAT makes sense at $30M+

• Genuine charitable intent + wealth transfer goals. A CLAT is not a pure tax arbitrage — the charity receives a meaningful annuity stream. It works best when a family wants to fund a multi-year commitment to their DAF or private foundation AND systematically transfer wealth to the next generation.
• Assets expected to significantly outperform the §7520 rate. At 5.0% (May 2026), a private equity co-investment, pre-IPO position, or venture portfolio targeting 15–25% annual returns can generate substantial remainder for heirs. The CLAT is a bet on above-hurdle performance.
• Taxable estate exceeds $15M individual / $30M married couple (OBBBA). For families in the $30M–$200M range, gift tax reduction via a zeroed-out CLAT is one of the most efficient tools available. The charitable deduction eliminates the gift tax while transferring growth to heirs.
• You want to capitalize a private foundation or DAF with a reliable multi-year stream. A CLAT commits to a defined annual distribution — useful for families who want to fund a formal philanthropic program without liquidating assets up front.
• Post-exit liquidity event with simultaneous charitable and estate planning goals. A CLAT funded immediately after a liquidity event (using proceeds, not appreciated stock) avoids the capital gains complexity while maximizing the period of trust-level appreciation.