What if a client already plans to give $25,000, $40,000 or more to charity every year for the next decade—but could use the tax deduction much more today than 10 years from now?

That was the planning opportunity explored by attorney Brad Gornto, J.D., LL.M., during a recent Financial Experts Network webinar on the reversionary charitable lead annuity trust, which Brad refers to as an ICLAT.

The strategy may be particularly interesting for charitably inclined clients facing a major Roth conversion, business or property sale, unusually large bonus, increased K-1 income or another high-income year.

The basic concept: potentially capture a significant income-tax deduction today based on charitable gifts the client already intends to make in future years.

How Does an ICLAT Work?

An ICLAT is a form of charitable lead annuity trust structured as a grantor trust for income-tax purposes.

In simplified terms:

1. The client establishes and funds the trust.
2. The trust makes predetermined annual payments to charity for a specified number of years.
3. At the end of the charitable term, remaining assets revert to the client.

That third step is especially important.

Unlike charitable strategies where the client permanently gives away the contributed assets, an ICLAT is designed so that the remaining assets eventually come back to the client.

Brad described the strategy as being primarily about income-tax planning rather than estate-tax planning.

The Deduction Is Based on Future Charitable Payments

Perhaps the most important concept for advisors to understand is how the charitable deduction is calculated.

It is not simply based on the amount initially transferred into the ICLAT.

Instead, the deduction is based on the present value of the trust's required future charitable payments.

For example, Brad illustrated a client planning to give:

$25,000 per year for 10 years

That's $250,000 of total future charitable payments.

Under the assumptions used in the presentation, the client could potentially receive a current charitable deduction of approximately:

$189,348

The applicable IRS §7520 interest rate is one factor in calculating that present value.

This creates an interesting planning question: If the client is going to make the charitable gifts anyway, when would the associated tax deduction potentially be most valuable?

Consider the Client Planning a Large Roth Conversion

One of Brad's examples involved a client named Peter.

Peter normally earns approximately $400,000 annually and gives $40,000 per year to charity. He expects to continue that giving for another 12 years.

Peter also decided to convert $1 million from a traditional IRA to a Roth IRA.

That creates a substantial amount of additional taxable income in a single year.

Peter's planned charitable giving over the next 12 years totals $480,000. Under the assumptions in Brad's illustration, placing that future giving schedule inside an ICLAT generated a current charitable deduction of approximately:

$346,669

The illustration estimated approximately $162,588 in combined federal and Minnesota income-tax savings.

The specific numbers will obviously vary from client to client.

But the broader planning concept is compelling: could charitable giving a client already intends to make help offset some of the taxable income created by a strategic Roth conversion or another unusually high-income event?

Who Should Advisors Be Looking For?

Brad suggested starting with two characteristics.

First, the client should already be charitably inclined.

This isn't primarily a strategy for convincing someone to become charitable simply to obtain a tax deduction.

Brad identified an ideal annual giving range of roughly $10,000 to $250,000 or more, although larger arrangements are possible.

Second, look for a significant change in taxable income.

Potential opportunities include:

• Roth conversions
• Sale of a business
• Sale of real estate
• Large bonuses
• Increased K-1 income
• Legal settlements
• Other unusually high-income years
• Transition into retirement

The last situation is particularly interesting.

Imagine a client earning $1 million annually who plans to retire next year. The client expects to continue giving $40,000 annually to charity after retirement.

Those charitable deductions may be considerably more valuable while the client is earning $1 million than after income declines in retirement.

An ICLAT potentially creates an opportunity to front-load the tax value of future charitable giving into the higher-income period.

What Happens to the Money Inside the Trust?

The trust must make its required charitable payments.

But the remaining assets can continue to be invested.

At the end of the charitable term, whatever remains can generally revert to the client.

That creates an important distinction between an ICLAT and a donor-advised fund (DAF).

ICLAT vs. Donor-Advised Fund

Brad was careful to emphasize that an ICLAT isn't inherently better than a DAF. In fact, he described himself as a strong supporter of donor-advised funds.

They simply accomplish different things.

With a DAF, the client makes an irrevocable charitable contribution. The sponsoring charity legally owns the assets, and future appreciation remains dedicated to charitable purposes. The donor retains advisory privileges over grants and investments, subject to the sponsor's rules.

With an ICLAT, the trust must fulfill its charitable payment obligation, but the client generally retains fiduciary control of the trust assets. At the end of the term, remaining assets can return to the client.

A useful way to think about the distinction is:

DAF: The contribution and future appreciation remain dedicated to charity.

ICLAT: The required payments go to charity, but assets remaining after those payments—including potential excess appreciation—can ultimately revert to the client.

Interestingly, the strategies can also be combined.

Brad said many ICLATs make their required annual charitable payments to the client's donor-advised fund. The client can then recommend grants from the DAF to individual charities over time.

Clients Can Retain Significant Control—but There Are Rules

The client will often serve as trustee of the ICLAT.

That means the client may retain significant fiduciary control over how the trust assets are invested.

But "control" should not be confused with unrestricted personal access.

The trust remains subject to important restrictions. Brad specifically discussed rules involving self-dealing and emphasized that clients cannot simply use, borrow or personally benefit from trust assets during the charitable term.

There's another important tradeoff.

Because the structure discussed during the webinar is a grantor trust, taxable income generated inside the ICLAT generally remains taxable to the client.

That can include dividends, interest, realized capital gains, rental income and other taxable income.

The upfront charitable deduction doesn't make the trust a tax-free investment account.

What Can Be Used to Fund an ICLAT?

Brad said most ICLATs his firm handles are funded with cash or marketable securities.

However, he also discussed the potential use of:

• Debt-free rental real estate
• LLC interests
• S corporation stock
• Limited partnership interests

Real estate can create particularly interesting planning opportunities.

For example, an ICLAT could potentially own a debt-free rental property, collect the rental income and use available cash flow to help satisfy its annual charitable payment obligation.

If the property is held inside an LLC, it may also be possible to transfer an LLC ownership interest rather than the real estate itself, depending on the circumstances.

These more complex funding arrangements require careful coordination with the client's tax and legal professionals.

Don't Wait Until the Business Sale Is About to Close

Timing becomes particularly important when appreciated property or a business sale is involved.

Brad cautioned against assuming that a client can wait until immediately before closing, transfer an asset into an ICLAT and automatically avoid the capital gain.

Prearranged-sale and assignment-of-income principles can become relevant when a transaction has already progressed substantially.

That makes charitable planning something advisors should discuss before a sale becomes substantially certain—not days before closing.

Even when it's too late to affect the taxation of the underlying sale, however, the resulting high-income year could still create a separate opportunity to evaluate charitable deduction strategies.

Five Questions Advisors Should Consider Asking

An advisor doesn't need to become a charitable trust expert to identify potential opportunities.

Start by asking:

1. How much are you already giving to charity each year?

2. Do you expect that level of giving to continue for the next 5, 10 or 20 years?

3. Are you anticipating a major Roth conversion, business sale, property sale or other unusually high-income event?

4. Is your taxable income likely to decline substantially after retirement?

5. If your future charitable gifts could generate a larger deduction today, would you want your CPA and estate-planning attorney to evaluate the opportunity?

Those questions may be enough to identify a planning opportunity that otherwise would have been missed.

The Bigger Planning Opportunity

The most interesting aspect of the ICLAT may not be the trust itself.

It's the change in how advisors think about charitable planning.

Instead of looking only at what a client intends to give this year, consider what that client is likely to give over the next decade or longer.

Then ask:

When would the tax value of those gifts potentially be most useful?

For a committed charitable giver approaching retirement, completing a large Roth conversion, selling a business or experiencing an unusually high-income year, that question could lead to a very different planning conversation.

An ICLAT won't be appropriate for every charitable client. But for the right client, it provides another strategy to evaluate alongside donor-advised funds, QCDs and other charitable-planning techniques.

Most importantly, the charitable intent should come first.

The planning opportunity is not about manufacturing charitable giving to obtain a tax deduction. It's about potentially structuring giving the client already intends to do in a more tax-efficient way.

Fact-Checked Resources

IRS Revenue Procedure 2007-45: Provides sample provisions and IRS guidance for charitable lead annuity trusts, including grantor CLATs. (irs.gov)

IRS §7520 Interest Rates: Provides the monthly interest rates used in valuing certain charitable interests. The §7520 rate for September 2026 was 5.4%. (irs.gov)

IRS Form 5227: Provides reporting requirements for split-interest trusts, including charitable lead trusts. (irs.gov)

IRS Publication 526: Provides general guidance on charitable contribution deductions, AGI limitations and carryforwards. (irs.gov)

Compliance Note

This article is for educational purposes and is based on concepts discussed during the Financial Experts Network webinar. Charitable lead trusts involve complex tax, legal, investment and estate-planning considerations. Numerical examples are illustrations and are not guaranteed results. Advisors should coordinate with qualified tax and legal professionals before implementing an ICLAT or other charitable trust strategy.