On March 9, 2023, the Biden Administration released its General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals (informally called the “2024 Greenbook”). The Greenbook explains several proposed changes to the tax code in the administration’s proposed budget. Many of these proposed changes were included in prior Greenbooks during the Obama administration.
However, one new proposal would reduce the wealth transfer benefits of charitable lead annuity trusts (CLATs). CLATs are trusts that pay an annuity to a charity for a term of years or the life of the donor with the remaining assets passing to one or more noncharitable beneficiaries at the end of the term. The Biden Administration proposal includes the following two changes for CLATs:
- At present, transfer tax benefits can be achieved by starting with a smaller annuity in the first year that increases by a specified percentage each year, allowing assets to remain in the CLAT for a longer time period and providing a higher distribution to the remainder beneficiaries without gift tax consequences. The Biden proposal would eliminate this strategy by requiring a level, fixed annuity for the term of the CLAT.
- Currently, a CLAT can be designed to leave a remainder interest with a present value at or near zero, enabling appreciation to pass gift-tax-free and allowing a 100% charitable deduction. The Biden proposal would require the present value of the remainder interest of the CLAT at its creation to be at least ten percent of the value of the assets funding it, ensuring a taxable gift upon its creation.
For help with estate planning for yourself or a family member or friend, please contact our office at (760) 448-2220 or online at https://www.geigerlawoffice.com/contact.cfm.
