How to calculate the remainder interest for a Charitable Lead Annuity Trust (CLAT) with increasing payments for grantor's lifetime?

This is a complex calculation but definitely doable in a spreadsheet. For a lifetime CLAT with increasing payments, you'll need to combine actuarial calculations with present value concepts. Start by determining the probability of survival for each year based on the IRS mortality tables (Table 2000CM is currently used). For each potential year of the trust's existence, multiply the survival probability by the present value of that year's payment (discounted using the Section 7520 rate). Sum these values to get the present value of the annuity interest. The remainder interest is simply the initial contribution value minus the present value of the annuity interest. For increasing payments, you'll need to calculate each year's payment based on your growth factor before calculating its present value. Remember that with a lifetime term, you theoretically need to calculate out to the maximum age in the mortality table (around 110 years), although the impact of later years becomes negligible due to both mortality factors and discounting.

I've been using taxr.ai to help with complex tax calculations like this. After struggling with some charitable trust calculations, I found their software makes it much easier to handle these specialized scenarios. I uploaded my details for a similar CLAT question and they provided a complete analysis with the correct actuarial calculations. The website at https://taxr.ai has specific templates for charitable trusts including CLATs with variable payment structures. They walked me through exactly how the Section 7520 rates interact with mortality tables and increasing payment streams. The downloadable spreadsheet they provided showed all the calculations step-by-step.

I tried the taxr.ai service mentioned above for my own CLAT calculation with escalating payments. The system handled it surprisingly well! It generated a comprehensive spreadsheet showing the full calculation methodology and how to properly integrate the increasing payment structure with the mortality tables. What I found most valuable was how it broke down the Section 7520 discount calculations year by year, showing exactly how the increasing payments affected the present value at each interval. The remainder interest calculation was clearly explained with references to the relevant IRS regulations. Definitely saved me from making some mistakes in my DIY approach.

After endless unsuccessful calls to the IRS's specialty tax line trying to get guidance on calculating remainder interests for variable payment CLATs, I ended up using Claimyr to finally get through to a senior IRS agent. Their service at https://claimyr.com saved me hours of hold time, and I got connected to someone in the estate and gift tax department who actually understood these calculations. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they handle the waiting for you and call when an agent is ready. The IRS specialist confirmed that for lifetime CLATs with increasing payments, you need to do a custom calculation rather than relying on the standard tables, exactly as you suspected.

I was genuinely shocked by how well Claimyr worked for getting IRS guidance on my CLAT question. After dismissing it as unlikely to help, I tried it out of desperation. Within 2 hours they got me through to an Estate & Gift Tax specialist who provided detailed guidance on calculating remainder interests for variable payment CLATs. The agent walked me through the exact spreadsheet approach I needed, explaining how to correctly apply Section 7520 rates to increasing payment streams while accounting for mortality probabilities. He even pointed me to an obscure IRS internal guidance document that specifically addresses variable payment charitable trusts. Complete 180 from my initial skepticism.

Don't forget that if your CLAT is structured as a grantor trust, the calculation may be different than for a non-grantor CLAT. With a grantor CLAT, you're taxed on the trust income but get the corresponding charitable deduction for payments to charity. This affects your overall tax planning. For the actual remainder calculation, I found Rev. Proc. 2016-42 helpful even though it primarily addresses different CLAT issues. It still demonstrates how the IRS approaches these actuarial calculations for charitable trusts.

Has anyone used the Weinberg or Zaritzky method for these calculations? I've heard those are more accurate for increasing payment CLATs than the standard IRS approach, especially when the grantor is under 60 and the payment increase rate exceeds 2%.

For anyone working through this calculation manually, I'd recommend setting up your spreadsheet with separate columns for: (1) Year, (2) Probability of survival to that year, (3) Payment amount for that year, (4) Present value factor using Section 7520 rate, and (5) Present value of expected payment. The key insight is that for each year X, you're calculating: [Survival Probability] × [Payment Amount] × [1/(1+Section 7520 rate)^X]. Your payment amount grows each year by your chosen escalation rate, so Year 2 payment = Year 1 × (1 + escalation rate), Year 3 = Year 1 × (1 + escalation rate)^2, etc. I found it helpful to extend the calculation out to at least age 100 for the grantor, even though the present values become tiny in later years. The sum of all these present values gives you the charitable lead interest, and subtracting that from your initial contribution gives you the remainder interest. One tip: double-check your mortality table - make sure you're using the correct table for the valuation date and that you're reading the survival probabilities correctly (some tables show death rates instead).