income tax for CLAT donors

income tax for CLAT donors

Forum topic posted in Forum on 25 July 2012| comments
audience: | last updated: 25 July 2012
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Joined: 04/23/2008
Points: 45

The extremely low 7520 rate makes donations to a CLAT very compelling at this time.  I have friends who are contemplating such a donation, but they would like to look for ways to minimize their taxes generated by trust income in future years.

It is my understanding that if a charitable income tax deduction is claimed, the CLAT’s income is taxable to the settlor of the CLAT throughout the term of the trust. If the settlor does not claim an income tax deduction, the CLAT’s income is not taxable to the settlor. My friends want the tax deduction, but are leery of making a substantial contribution, taking the deduction, and then finding out in subsequent years that they're on the hook for substantial taxes, especially if marginal tax rates increase in the future, which is very likely in my opinion. 

Any ideas on how to reduce the amount of income taxes this husband and wife may be liable for on future trust income?  They could invest in just muni bonds, but there's a lot of interest rate risk with muni's, and they would like a higher potential return than is possible with muni's.  Growth stocks paying little if any div's could also work, but they typically  have more market risk than large, dividend-paying stocks, which is their preference.

Any help / ideas would be greatly appreciated!


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7520 Rates:  July 3.4%  June 3.4%  May 3.2%

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