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IMMEDIATE Tax Savings from Future Gifts to Charity – Meet the Simpler “Reversionary” Type of Charitable Lead Annuity Trust

Presenter: Brad Gornto, J.D., LL.M.
Host: Tom Dickson, Financial Experts Network
Original Air Date: September 29, 2026
Run Time: Approximately 1 Hour, 38 Minutes
Topic Area: Charitable Planning, Income Tax Planning, Charitable Lead Trusts

Key Takeaways

• A reversionary charitable lead annuity trust, referred to during the webinar as an ICLAT, can potentially provide an immediate income-tax deduction based on charitable gifts a client already intends to make over future years.
• The trust makes scheduled annual payments to charities or, in many cases, a donor-advised fund (DAF). At the end of the term, remaining assets revert to the client.
• The charitable deduction is based on the present value of the required future charitable payments, not simply the amount initially placed into the trust.
• The client generally serves as trustee and retains fiduciary control over the trust assets.
• Because the ICLAT is structured as a grantor trust, taxable income generated by the trust generally remains taxable to the client.
• Brad identified strong candidates as established charitable givers—often giving approximately $10,000 to $250,000 or more annually—who also have a significant current or upcoming income event.
• Potential planning opportunities include Roth conversions, business or property sales, large bonuses, increased K-1 income, settlements, RMD-related income and retirement.
• An ICLAT and a DAF serve different purposes. With a DAF, contributed assets are permanently dedicated to charity. With an ICLAT, remaining assets can return to the client after the charitable obligation has been satisfied.

How the ICLAT Works

Brad described the ICLAT as a simpler, reversionary form of charitable lead annuity trust focused primarily on income-tax planning rather than estate-tax planning.

The structure generally involves three steps:

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 term, remaining trust assets revert to the client.

The IRS recognizes grantor charitable lead annuity trusts. A properly structured grantor CLAT can generate a charitable deduction based on the present value of the charitable annuity interest, subject to applicable deduction limitations. The grantor is generally responsible for income generated by the trust during the charitable term. (irs.gov)

The Key Concept: A Deduction Today for Future Giving

Consider a client who already gives $25,000 annually and expects to continue doing so for another 10 years.

Rather than making each gift separately, an ICLAT could commit to those future annual payments. The client may then receive a current charitable deduction based on the present value of that future payment stream.

In Brad's example, $25,000 annually for 10 years represented $250,000 of future charitable payments and generated an illustrated current deduction of approximately $189,348.

The applicable §7520 interest rate affects the present-value calculation. The IRS §7520 rate was 5.4% for September 2026. (irs.gov)

An important distinction is that the deduction is not simply determined by the amount initially funded. The required charitable payment stream drives the present-value calculation.

Who May Be a Good Candidate?

Brad emphasized that the strategy starts with genuine charitable intent.

The strongest candidate is someone who already gives regularly—or has made a real commitment to begin doing so—and also has a reason why a substantial charitable deduction could be especially valuable today.

Potential income events include:

• Roth conversions
• Business or real estate sales
• Large bonuses
• Increased K-1 income
• Legal settlements
• High-income years
• RMD-related income
• Approaching retirement

Retirement creates an interesting planning opportunity. A client earning substantial income today may expect to continue charitable giving after retiring, when taxable income could be considerably lower. An ICLAT may provide a way to capture some of the tax value of those future gifts during the higher-income period.

Case Study: Roth Conversion

Brad illustrated the strategy with Peter, who gives $40,000 annually and plans to continue for 12 years.

Peter normally earns approximately $400,000 but completed a $1 million Roth conversion.

His planned charitable payments totaled $480,000.

Under the assumptions used in the presentation, the ICLAT generated an estimated current charitable deduction of:

$346,669

Brad's illustration estimated approximately $162,588 of combined federal and Minnesota income-tax savings.

The planning concept is more important than the specific numbers: a client with a large Roth conversion or another unusual income event may be able to coordinate that income with charitable gifts already planned for future years.

What Happens to the Remaining Assets?

The ICLAT must make its required charitable payments, but the entire amount originally funded does not necessarily go to charity.

At the end of the term, remaining assets revert to the client.

Investment performance therefore matters. If trust assets earn more than is required to satisfy the charitable payment schedule, the remaining value can ultimately return to the client.

Because the trust is a grantor trust, Brad explained that the reversion itself generally does not create a separate income-tax event. The historical cost basis of the assets generally continues.

The tradeoff is that the client remains responsible for taxable income generated by the trust, including interest, dividends, realized capital gains and rental income.

ICLAT vs. Donor-Advised Fund

Brad emphasized that an ICLAT is not inherently better than a DAF. They accomplish different objectives.

With a DAF, contributed assets become the property of the sponsoring charity. The donor retains advisory privileges, but the assets and future appreciation remain permanently dedicated to charitable purposes.

With the ICLAT, the client generally serves as trustee and retains fiduciary control over the assets while the trust fulfills its required charitable payments. Remaining assets can then revert to the client.

The distinction can be summarized as:

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

ICLAT: The required charitable payments go to charity, while remaining assets and potential excess appreciation can eventually return to the client.

The strategies can also work together. Brad said many ICLATs make their required annual distributions to the client's DAF, allowing the client to subsequently recommend grants to individual charities.

Funding the ICLAT

Brad said approximately 80%–85% of the ICLATs his firm handles are funded with cash or marketable securities, but other assets may potentially include:

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

Real estate can be particularly useful when it produces income that can help fund the annual charitable payments. Depending on the ownership structure, an LLC interest holding real estate may potentially be transferred to the trust rather than transferring the property itself.

These transactions require individualized legal and tax analysis.

Important Risks and Planning Considerations

Market declines: A decline in value does not necessarily create a problem as long as the trust can continue making its required charitable payments. If assets become insufficient, additional funding, termination and potential tax consequences may need to be considered.

Death during the term: Brad explained that the grantor's death can result in an income-tax recapture calculation, after which the trust's tax treatment changes. The trust should also name a successor trustee and address where remaining assets ultimately pass.

Prearranged sales: Moving appreciated property into an ICLAT immediately before a substantially certain sale does not automatically eliminate the associated capital gain. Advisors should involve tax and legal professionals early in the transaction.

Appreciated property: Brad discussed differing interpretations concerning the tax consequences of satisfying annual charitable payments with appreciated property. He acknowledged that IRS private letter rulings have reached conclusions different from his professional interpretation in certain circumstances. This should be treated as a fact-specific area requiring professional tax advice.

Annual Administration

The strategy requires ongoing administration.

Brad discussed annual filing of Form 5227, Split-Interest Trust Information Return, appropriate grantor-trust reporting and any applicable state filings.

The IRS confirms that charitable lead trusts are split-interest trusts subject to Form 5227 reporting and various rules applicable to these arrangements. (irs.gov)

Practical Application for Advisors

The most useful screening question may be:

Does this client already make meaningful annual charitable gifts and have a current or upcoming income event that makes a large deduction particularly valuable?

If so, advisors can explore whether an ICLAT belongs alongside DAFs, QCDs and other charitable-planning strategies.

Potential candidates include clients completing Roth conversions, selling businesses or property, experiencing unusually high income, or approaching retirement while intending to continue substantial charitable giving.

Implementation should involve collaboration among the client's financial advisor, CPA and qualified tax or estate-planning attorney.

The Bottom Line

The ICLAT offers a different way to structure charitable giving a client already intends to make.

Rather than permanently contributing many years of future gifts to a DAF today, an appropriately structured reversionary grantor CLAT may allow a client to receive a current deduction based on the present value of required future charitable payments, retain fiduciary control of trust assets during the term, and potentially receive remaining assets back afterward.

The strategy is most relevant when charitable intent already exists and the timing of a substantial deduction can complement a significant income event.

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 rates used in valuing certain charitable interests. The September 2026 rate 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 guidance on charitable contribution deductions, AGI limitations and carryforwards. (irs.gov)

Presenter Resource: Brad referenced ICLAT.net for educational materials, calculators and illustrations.

Compliance Note

This summary is for educational purposes. Charitable lead trusts involve complex tax, legal, investment and estate-planning considerations. Numerical examples are illustrations rather than guaranteed results, and certain issues discussed during the webinar involve fact-specific or potentially differing interpretations of tax authority. Advisors should coordinate with qualified tax and legal professionals before implementation.