A charitable lead annuity trust (CLAT) is a trust that pays a fixed amount to charity every year for a set term, then passes what's left to your children or other heirs. For Catholic families across the Valley, it funds parishes and schools today while lowering gift or estate tax on assets meant for the next generation. The Catholic Community Foundation helps families fit one into a broader estate plan.
How Does a Charitable Lead Annuity Trust Work?
Charity First, Family Second
A CLAT works in a simple order. You place assets in the trust. The trust pays charity a fixed dollar amount each year. A Scottsdale family might send $25,000 a year to a Catholic school for 15 years. When the term ends, the remaining assets pass to your heirs or come back to you. The Catholic Community Foundation can serve as the charity that receives those payments, directing them to ministries across the Diocese of Phoenix. The order matters.
Why Not Just Write a Check Each Year?
A check is the simplest gift. It's also the least efficient, and it does nothing for your estate plan. A CLAT funded with appreciated stock, a closely held business interest, or investment real estate can support the same parish while moving future growth to your family. Same gift. Better structure.
What's the Tax Benefit of a Charitable Lead Trust?
The Section 7520 Rate Sets the Math
The IRS values the charity's share of a CLAT using the Section 7520 interest rate. For October 2026, the IRS set that rate at 5.6%. If the trust's investments earn more than the 7520 rate, the extra growth passes to your heirs without additional gift tax. A lower rate makes that easier. Rates move monthly. A Flagstaff couple should run the numbers with the Catholic Community Foundation before picking a start date.
Grantor vs. Non-Grantor Trusts
The difference between a grantor and a non-grantor charitable lead trust is who gets the deduction and who pays the income tax. In a grantor CLAT, you take an upfront income tax deduction but pay tax on the trust's income each year. In a non-grantor CLAT, you get no income tax deduction, but the charity's share reduces the taxable gift to your heirs. The IRS rules on charitable contribution deductions still shape both. Either way, ministries in the Diocese of Phoenix benefit.
Is a Lead Trust Right for Your Family?
Charitable Lead Trust vs. Charitable Remainder Trust
These trusts are mirror images. A charitable remainder trust pays income to you first, then gives what's left to charity. A charitable lead trust pays charity first, then gives what's left to your family. One supports your retirement; the other supports your heirs. A CLAT tends to fit families who:
- Don't need the income from the assets
- Expect the assets to grow faster than the 7520 rate
- Want to reduce future gift or estate taxes
- Already give generously to their parish or Catholic school
A Charitable Lead Unitrust Is the Flexible Cousin
A charitable lead unitrust pays charity a fixed percentage of the trust's value, recalculated each year, instead of a fixed dollar amount. If the assets grow, the charity's payment grows too. That's generous, but less goes to heirs. Some Prescott families with rental property prefer it. The Catholic Community Foundation can receive either kind, and payments can flow to an endowment for your parish or to a donor-advised fund, subject to your attorney's review. Every payment stays in the Diocese of Phoenix.
Frequently Asked Questions
Q: How much do you need to start a charitable lead annuity trust?
A: The Catholic Community Foundation works with charitable lead and remainder trusts starting at $100,000.
Q: Who receives what's left when the trust ends?
A: Your children or other heirs usually receive them, or they return to you in a grantor trust.
Q: Can the payments support more than one ministry?
A: Yes, the annual payments can be split among several parishes, schools, or ministries in the Diocese of Phoenix through the Foundation.
Plan a Gift That Serves Two Generations
A charitable lead annuity trust pairs faith with family planning: steady support for Catholic ministry now, and a more tax-efficient inheritance later. The Catholic Community Foundation's gift planning team in Tempe can walk through the options with you. Reach out through our contact page or call us at 480-651-8800.