Charitable Lead Trust (CLAT): 2026 Zero-Out Table at 5.6% and 6.2%

What a CLAT is, in the words of the Code

A charitable lead trust is the mirror image of the charitable remainder trust: charity gets the payments first and the family gets what is left. The Code treats the two differently. A gift of a remainder interest in trust is deductible only if the trust is a charitable remainder annuity trust or unitrust “described in section 664” (26 U.S.C. 170(f)(2)(A)). Every other interest in trust, which is where a lead interest sits, is deductible only “in the form of a guaranteed annuity or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly)”, and for the income tax deduction “the grantor is treated as the owner of such interest for purposes of applying section 671” (26 U.S.C. 170(f)(2)(B)). The gift tax and estate tax versions are the same sentence: “such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property” (26 U.S.C. 2522(c)(2)(B) and 2055(e)(2)(B)).

The regulation defines the annuity: “a determinable amount is paid periodically, but not less often than annually, for a specified term of years or for the life or lives of certain individuals” (26 CFR 1.170A-6(c)(2)(i)(A)). There is no 5% floor, no 50% ceiling and no 10% remainder test; Rev. Proc. 2007-45 says it in one line: “CLATs are not subject to any minimum or maximum payout requirements.” That freedom is what lets a donor set the annuity at whatever level makes the remainder worth zero.

Two designs exist and they are taxed very differently:

Source: 26 U.S.C. 170 (2024 edition and current text), 2522; 26 CFR 1.170A-6 and 1.170A-8 (eCFR, version of October 7, 2026); Rev. Proc. 2007-45; IRS Statistics of Income Bulletin, Winter 2009. Interpretations are ours.

Our arithmetic shows why the grantor design is usually for high earners. A zeroed-out grantor CLAT on $2,000,000 produces a deduction equal to the property, $2,000,000. At a 30% limit that is deductible in one year only with adjusted gross income of $6,666,667; spread over the year of the gift and the 5 carryover years (6 years at 30%), it needs about $1,111,111 of AGI every year, before the 0.5% floor and any other gifts. For how the floor and the 35% cap work, see our guide to the 2026 charitable deduction.

The rate: 5.4%, 5.6% or 6.2%, and which way it cuts

The Section 7520 rate is fixed by statute at “120 percent of the Federal midterm rate in effect under section 1274(d)(1) for the month in which the valuation date falls”, rounded to the nearest 0.2% (26 U.S.C. 7520(a)). Rev. Rul. 2026-19, Table 5, sets October 2026 at 5.60%. Rev. Rul. 2026-21, Table 5, sets November 2026 at 6.20%. The IRS’s own rates page, last reviewed September 25, 2026, still ends at October, so use the ruling. Our applicable federal rate guide tracks all the months.

Source: IRS, “Section 7520 interest rates” (page last reviewed September 25, 2026); Rev. Rul. 2026-17, 2026-19 and 2026-21, Table 5.

The Section 7520 rate is the return the IRS assumes the trust will earn. For a CLAT it is the discount applied to the payments charity will receive: a higher rate makes those payments worth less today, so a bigger annuity is needed to reach a zero remainder. The result runs the other way from a charitable remainder trust, whose deduction rises with the rate. In our arithmetic, going from 5.6% to 6.2% raises a 10-year zero-out annuity on $5,000,000 from $666,524 to $685,791, and cuts what reaches the heirs at an 8% return by $279,115.

The look-back. Section 7520(a) has a sentence a GRAT cannot use: “If an income, estate, or gift tax charitable contribution is allowable for any part of the property transferred, the taxpayer may elect to use such Federal midterm rate for either of the 2 months preceding the month in which the valuation date falls.” A CLAT qualifies because the charity’s annuity is deductible. Our reading is that a CLAT funded on any day of November 2026 may use 5.4% (September) or 5.6% (October) instead of 6.2%, and one funded in December 2026 may use 5.6% (October) or 6.2% (November), or whatever December’s ruling sets. How and where the election is made is a question for your attorney and CPA. The same rate has to be used for every interest transferred in the same property.

The zero-out table, with the formula

The present value of a term-certain annuity is the annual amount times the annuity factor, which 26 CFR 20.2031-7(d)(2)(iv)(A) defines as 1.000000 minus the remainder factor for the same term, divided by the Section 7520 rate. The zero-out annuity is the payment whose value equals the property, so it is one divided by the factor:

factor           = (1 - (1 + i)^-n) / i
zero-out annuity = 1 / factor, as a share of the starting value
quarterly in arrears (as in the IRS sample trust):
zero-out annuity = 1 / (factor x K),  K = i / (4 x ((1 + i)^(1/4) - 1))

K is the payment-frequency adjustment of 26 CFR 20.2031-7(d)(2)(iv)(B). The regulation prints its Table K values at 3.2% (semiannual 1.0079, quarterly 1.0119, monthly 1.0146), and the formula above reproduces the quarterly one; at 5.6% it is 1.0208 and at 6.2% 1.0230 (our arithmetic). The IRS sample trust, Rev. Proc. 2007-45, pays “in equal quarterly installments at the end of each calendar quarter”, so that column is the one a trust drafted from the sample would use. Dollar columns assume one payment a year, which is how we model what reaches the heirs below.

Source: our arithmetic (script saved with the data) from the formulas of 26 CFR 20.2031-7 and the rates of Rev. Rul. 2026-17, 2026-19 and 2026-21. A zero remainder is an approximation of what drafting achieves; real instruments are priced from the IRS’s own tables on the funding date.

A zero-out annuity is a payment of 8% to 14% of the starting value each year, in a trust whose property may yield far less. The trustee pays from income “and, to the extent income is not sufficient, from principal” (Rev. Proc. 2007-45). If a $5,000,000 rental property nets 5% of its value, a figure we assume for illustration, a 10-year trust at 5.6% needs $666,524 a year against $250,000 of income, a gap of $416,524 that comes from the property’s growth, a sale, or a loan.

What reaches your heirs

When the property earns exactly the Section 7520 rate, the heirs get nothing; every point above it is theirs. The table assumes the property’s total return, income plus growth, equals the stated rate every year and the annuity is paid at the end of each year (our arithmetic: remainder = V x (1+g)^n minus annuity x ((1+g)^n - 1) / g).

Source: our arithmetic. At 6.2% and a 6% return the formula turns negative in the last year, which means the final annuity payment is not fully covered; we show $0 to the heirs.

Two things stand out. At a 6% return a CLAT set at 6.2% is short in every term shown, so the trust cannot pay charity in full in the last year; the November rate is a hurdle most diversified portfolios do not clear after fees. And the donor who uses the September 5.4% instead of 6.2% on a $5,000,000, 10-year trust has $371,301 more reaching the heirs at 8% ($1,231,165 against $859,864). Nothing here predicts a return; it only shows the arithmetic of a fixed annuity.

The 60% line, and why a zeroed-out CLAT sits on the wrong side of it

A CLAT is a split-interest trust. The Code applies to it, “as if such trust were a private foundation”, the rules on self-dealing (4941), excess business holdings (4943), jeopardizing investments (4944) and taxable expenditures (4945) (26 U.S.C. 4947(a)(2)), and the trust instrument must follow section 508(e). Sections 4943 and 4944 are switched off only if “all the income interest (and none of the remainder interest)” goes to charity and the deductible amounts “have an aggregate value not more than 60 percent of the aggregate fair market value of all amounts in such trusts” (26 U.S.C. 4947(b)(3)(A)). The regulations tie this to the deduction itself: if the present value of the charitable income interest exceeds 60%, it is not a guaranteed annuity interest unless the instrument bars acquiring and keeping assets that would draw a 4944 tax (26 CFR 1.170A-6(c)(2)(i)(D); 25.2522(c)-3(c)(2)(vi)(e)). Rev. Proc. 2007-45 says the same in its own words: the 4943 and 4944 clauses may be removed only “If the present value of the charitable interest does not exceed 60 percent of the aggregate value of all amounts in the trust” (and the trust pays no income to a noncharitable beneficiary); otherwise the sample trust bars “excess business holdings that would subject the trust to tax under § 4943”.

A zeroed-out CLAT has a charitable interest worth 100% of the property, so the foundation rules apply in full. A donor who stays at or under 60% avoids sections 4943 and 4944 but makes a taxable gift of the other 40%. Our arithmetic:

Source: our arithmetic, 0.6 x the zero-out annuity. At that annuity the taxable gift is 40% of the value: $2,000,000 on a $5,000,000 property, against a 2026 basic exclusion amount of $15,000,000 (Rev. Proc. 2025-32, section 2.14).

The regulation also explains why a single property cannot be split into a safe half: when the charity’s income interest and the family’s remainder are interests in the same asset, “the entire trust is subject to section 4947(a)(2)” (26 CFR 53.4947-1(c)(3)(v), Example 2). Segregation under 4947(a)(2)(B) works only for separate assets on which no deduction was allowed.

Real estate: what each rule does to a building in a CLAT

Source: 26 U.S.C. 2642, 4941, 4943, 4946 and 4947; 26 CFR 53.4943-10 and 53.4947-1 (eCFR, version of October 7, 2026); Rev. Proc. 2007-45; Rev. Proc. 2025-32. Rows marked as our reading are ours.

The comparison with the charitable remainder trust is useful. The CRT page explains a 100% excise tax on debt-financed income inside the trust and a 5-year mortgage test; the lead trust has no such excise tax, but a 10-year mortgage test for self-dealing and the loss of the 642(c)(1) deduction on unrelated income. The two trusts are not substitutes: one pays you and gives the rest to charity; this one pays charity and gives the rest to your family. If you want to transfer appreciation to children at a low gift tax cost without a charity, the tools are a GRAT or, for a home, a qualified personal residence trust; the estate tax exemption guide shows when the $15,000,000 exclusion makes any of them unnecessary.

What IRS data shows about charitable lead trusts

The IRS counted charitable lead trusts as a class in its Statistics of Income studies of Form 5227, the split-interest trust return. The last year with a CLT-specific table is filing year 2012.

Source: IRS Statistics of Income Bulletin, “Split-Interest Trusts, Filing Year 2007” (Winter 2009) and “Split-Interest Trusts, Filing Year 2012” (Winter 2014), Tables 8 and 9 and Figure C. Book values; estimates based on samples.

Real estate is a small part of what CLTs hold: 1.03% of assets in 2012, against $10.64 billion in “other investments”, a category the IRS describes as including annuities, foreign government bonds, hedge funds and venture capital. The returns are a snapshot of a study sample from before the 2017 and 2025 tax laws, and the IRS has not published a CLT table since.

Verdict

A CLAT fits a narrow reader: someone who already intends to give a meaningful amount to charity over many years, owns a property or an LLC interest expected to grow faster than the Section 7520 rate after paying the annuity, wants that growth to reach children or grandchildren without gift tax, and can live with an irrevocable trust that pays out 8% to 14% of its starting value every year. It is a poor fit for a reader whose only goal is to save tax, whose property yields little and may not appreciate, whose building is mortgaged, or who expects to sell to or lease to family. At a 6.2% rate the trust needs the property to return more than 6.2% a year after costs just to leave anything; at the September 5.4% the hurdle is 0.8 points lower. And with a $15,000,000 exclusion for 2026 (Rev. Proc. 2025-32), many families that would once have used a CLAT to avoid estate tax no longer need to.

What a property owner can do with this

• Ask which rate and which month. The Section 7520 rate is 5.6% for October 2026 and 6.2% for November 2026 (Rev. Rul. 2026-19 and 2026-21). Ask whether the look-back election to an earlier month is being used.
• Ask for the zero-out computation. The annuity percentage, the payment frequency, the factor and the rate should be on one page; compare it with the table above.
• Stress-test the cash flow. Put the annual payment next to the property’s net income and ask where the difference comes from in years 1 to 3.
• Check the dates on any mortgage. Ask in writing whether the loan was placed within 10 years of the transfer, or would be assumed by the trust (26 U.S.C. 4941(d)(2)(A)).
• Ask who the disqualified persons are and whether any of them will lease, sell, lend to or buy from the trust, directly or through an entity they own more than 35% of.
• Ask whether the charity’s share is above 60% and, if so, what the trust does about excess business holdings in any LLC, and the 5-year clock.
• Choose grantor or nongrantor deliberately. The grantor design front-loads a deduction subject to the 30% limit, the 0.5% floor and recapture; the nongrantor design gives the donor none.
• Use an independent trustee if the charity is to be chosen later.

FAQ

Sources, read and saved on October 21, 2026: 26 U.S.C. 170, 2055, 2522, 2642, 4941, 4943, 4944, 4946, 4947 and 7520 (United States Code 2024 edition, govinfo.gov) and 26 U.S.C. 170 current text (Cornell Legal Information Institute); 26 CFR 1.170A-6, 1.170A-8, 20.2031-7, 25.2522(c)-3, 53.4943-10 and 53.4947-1 (eCFR, version of October 7, 2026); Rev. Proc. 2007-45 (irs.gov); Rev. Proc. 2025-32 (irs.gov); Rev. Rul. 2026-17, 2026-19 and 2026-21 (irs.gov); IRS “Section 7520 interest rates” page, last reviewed September 25, 2026; IRS Statistics of Income Bulletin, Split-Interest Trusts, Filing Years 2007 and 2012. Annuity percentages, remainders, shares and sums are our arithmetic (script saved with the data); interpretations marked “our reading” are ours. This is analysis of public documents, not investment, legal or tax advice.