The dramatic gains of the last 10 years in the capital markets compel trustees of charitable lead annuity trusts (CLATs) to examine whether the moment of commutation has arrived.
Private Letter Ruling 202614004 (4/3/2026) addressed the three primary tax risks in attempting a commutation.
1. No Self-Dealing
Section 4941 imposes an excise tax on each act of self-dealing between a disqualified person and a private foundation. Section 4941 applies to CLATs by virtue of section 4947(a)(2). However, Treas. Reg. Section 53.4946-1(a)(8) provides that for purposes of section 4941 only, the term “disqualified person” shall not include any organization which is described in section 501(c)(3) (other than an organization described in Section 509(a)(4)). Because a DAF is administered and maintained by a Sponsoring Organization that is recognized as an organization described in Section 501(c)(3), a DAF is not a disqualified person for purposes of Section 4941. Accordingly, the accelerated payment of the undiscounted remaining annuity amounts to a DAF is not an act of self-dealing under Section 4941.
2. No Taxable Expenditures
Section 4945(a)(1) imposes a tax upon a private foundation’s making of any taxable expenditure as defined in section 4945(d). Section 4945(d)(5) provides that the term “taxable expenditure” means any amount paid or incurred by a private foundation for any purpose other than one specified in section 170(c)(2)(B). Pursuant to its trust agreement, a CLAT is making annuity payments to a DAF, which is administered and maintained by Sponsoring Organization, and the organization is recognized as exempt under Section 501(c)(3). Consequently, these payments are for a charitable purpose specified in Section 170(c)(2)(B). Therefore, the accelerated payment of the undiscounted annuity amount from the CLAT to the DAF is not a taxable expenditure under Section 4945.
3. No Tax on Termination of Private Foundation Status
Section 507(a) provides, in part, that the status of any organization as a private foundation shall be terminated only if such organization notifies the Secretary of its intent to accomplish such termination. Section 507(c) imposes a tax upon a private foundation’s termination of its status as a private foundation. Treas. Reg. section 53.4947-1(e)(1) provides that the provisions of Section 507(a) shall not apply to a trust described in Section 4947(a)(2) by reason of any payment to a beneficiary that is directed by the terms of the governing instrument of the trust and is not discretionary with the trustee. Here, the CLAT’s governing instrument requires annuity payments to the DAF and the Trustee does not have discretion over whether to pay the annuity amounts. Accordingly, Section 507 does not apply, and the accelerated payment and termination are not subject to tax under Section 507(c).
Final Thoughts
Since the results of this or any other private letter ruling may not be relied upon by the general public, care should be taken in seeking a commutation only after the statute of limitations for assessing additional income or gift tax has expired. Gift planners should continue to omit commutation language; its inclusion would disqualify the trust as a CLAT per Rev. Rul. 88-27.
A magna cum laude graduate of Cornell University, Christopher P. Woehrle earned his JD and LLM (Taxation) from the Widger School of Law at Villanova University, where he is also a member of the Graduate Tax Program Advisory Board. Chris is a member of the Pennsylvania Bar and teaches charitable gift planning and principles of wealth management in the LLM taxation program at the Widger School of Law. You can connect with Chris by email.
