Charitable Lead Annuity Trust (CLAT) Calculator

Estimate the zero-out annual payment, total given to charity, and estimated remainder to heirs from a non-grantor CLAT. Uses the May 2026 §7520 rate of 5.0%.¹ A zero-out CLAT means the gift tax on the transfer to heirs is $0 — the entire taxable gift is offset by the charitable lead interest deduction (IRC §2522).

How the zero-out CLAT works

A Charitable Lead Annuity Trust (CLAT) sends a fixed annual dollar payment to charity for a set term, then distributes the remaining assets to your heirs. A "zero-out" CLAT is structured so the present value of all charity payments — discounted at the IRS §7520 rate — exactly equals the amount you contribute. This means:

• No taxable gift at funding. Under IRC §2522(c), the charitable deduction for the present value of the annuity stream equals the full funding amount, making the taxable gift to heirs $0. No gift tax. No exemption used.
• The §7520 rate is the hurdle. If the trust earns exactly the §7520 rate, the remainder to heirs is $0 — the annuity payments consume all growth. Every percentage point of return above the §7520 rate creates a tax-free windfall for heirs.
• At 5.0% §7520 (May 2026), a lower rate is better. The lower the §7520 rate, the smaller the required annual payment, and the more excess return accumulates for heirs. CLATs were extraordinarily powerful in 2020–2021 when §7520 was near 0%.³

The math in plain terms: $5M example at 5.0% §7520, 20-year term

Result: $8M+ to charity, ~$5M to heirs, no gift tax or estate tax on the transfer. Without the CLAT, passing $5M of estate assets to heirs at death would incur 40% estate tax on amounts over the $15M exemption — a cost of up to $2M on this $5M.

Why lower §7520 rates produce better CLAT results

The §7520 rate is the IRS's assumed return for valuing future income streams. For a zero-out CLAT:

• At 2.0% §7520: $5M CLAT, 20 years → payment = $308,000/yr → much more trust assets remain if actual return is 8%
• At 5.0% §7520: $5M CLAT, 20 years → payment = $401,000/yr → moderate heir remainder at 8% actual
• At 8.0% §7520: $5M CLAT, 20 years → payment = $509,000/yr → very little heir remainder at 8% actual (trust must outperform 8% to leave anything)

In a higher §7520 environment like 2026, CLATs still work — they require more trust outperformance and work best with longer time horizons or assets with strong return potential (private equity, growth equity, real estate).

Non-grantor vs. grantor CLAT

Most estate planning CLATs are non-grantor. A grantor CLAT is sometimes used when a donor has an unusually high-income year (a business sale, for example) and wants a large upfront deduction, accepting that they will personally pay income tax on trust earnings for the full trust term.

When a CLAT makes sense

• Estate over $15M OBBBA exemption. A zero-out CLAT transfers assets to the next generation without consuming estate/gift exemption or incurring current transfer tax. The larger the estate-tax exposure, the more compelling the math.
• High-return assets available to fund the trust. Private equity stakes, closely held business interests, growth equity, or real estate with appreciation potential all perform well inside a CLAT if returns exceed the §7520 hurdle rate by a meaningful margin.
• Genuine charitable intent. The IRS annuity payments go to real charities (or a Donor-Advised Fund). The estate-planning benefit is real, but the charity payments are irrevocable — this is not a technique for donors without philanthropic goals.
• Long time horizon. Longer terms amplify the return-vs-hurdle spread. A 20-year trust at 8% return vs. 5% hurdle generates far more heir upside than a 10-year version.
• Not a good fit when: The estate is under $15M (the OBBBA exemption covers it, so estate tax isn't the driver); when you need income during the trust term (the CLAT pays charity, not you); or when assets are low-return (bonds, CDs) that won't outpace the §7520 rate.

Practical CLT setup considerations

• Trustee: A corporate trustee is common for CLATs — they handle the annual annuity distributions, valuations, and tax filings. Cost: ~0.5–1.5% of trust assets annually.
• Charity designation: Payments can go to a specific charity, a family foundation, or a Donor-Advised Fund (except for testamentary CLTs — DAFs cannot receive testamentary contributions). Many families use a DAF to retain grant-making flexibility during the trust term.
• Annuity amount: Fixed at trust creation. You cannot increase or decrease the annuity payment once set — this is why careful modeling matters before funding.
• Investment management: The trust assets must be invested with fiduciary care. A charitable planning advisor can help structure an investment mandate that balances the need to outperform the §7520 rate with downside risk management.

Sources

1. IRS — Section 7520 Interest Rates. May 2026: 5.0% per Rev. Rul. 2026-9. Treas. Reg. §1.7520-1(b)(1) permits use of the §7520 rate for the transfer month or either of the 2 preceding months — use whichever is lower for CLAT funding.
2. IRS — Estate and Gift Tax. Federal estate tax: 40% top rate on taxable estates over the applicable exclusion. OBBBA (One Big Beautiful Bill Act, July 2025) permanently raised the estate and gift tax exemption to $15,000,000 per individual ($30,000,000 MFJ with portability election), indexed for inflation. Gift tax annual exclusion: $19,000 per donee for 2026 per Rev. Proc. 2025-32.
3. The Tax Adviser — "Planning with Charitable Lead Trusts" (Dec 2021). Detailed analysis of CLAT mechanics, zero-out strategies, grantor vs. non-grantor treatment (IRC §675), and historical context for near-zero §7520 environment. AICPA reference for practitioner-level CLT guidance.
4. Treas. Reg. §25.2522(c)-3 — Transfers Not Exclusively for Charitable Purposes. Governs the gift tax charitable deduction for split-interest transfers including CLTs. Annuity factors and calculation methods prescribed under §7520. Zero-out annuity rate equals: (1 ÷ annuity factor), where annuity factor = [1 − (1+i)^−n] ÷ i.

§7520 rate verified per IRS Rev. Rul. 2026-9 (May 2026). Estate exemption per OBBBA (July 2025). Annual exclusion per Rev. Proc. 2025-32. Calculator uses the exact zero-out formula from Treas. Reg. §25.2522(c)-3. All figures are directional estimates; consult a qualified estate planning attorney and tax advisor before funding any irrevocable trust. Values verified May 2026.