What is a TCLAT and should you even care?

My partner was at a meeting this morning where her reputation had preceded her. She was accosted by an attorney who by way of introduction said, "You're Susan Laine, you do Exit Planning. You must use TCLATs in your practice…" Susan just stood there and allowed him to continue. "What about 368…?" He continued. Susan knew, of course, that these were tools that might be used by a business owner in his or her planning. A Testamentary Charitable Lead Annuity Trust or TCLAT is a trust which may be created by a living trust or will which requires the trustee to make a stream of payments to a charity (for which it gets a tax deduction) and at the end of the trust period pays out to a family beneficiary. The "368" the attorney referred to is Section 368(a)(1)(A) of the Internal Revenue Code which allows for tax-free treatment of certain mergers and reorganizations.

All this is immaterial when put in context. Exit planning is not about the tools we use. It is not about the hottest new asset protection trust or captive insurance company. Exit planning is not about buy-sell agreements whether or not funded with life insurance. It is not about ESOPs. All these things are tools. Just like "368," TCLATs, 83(b) elections, SARs and Phantom Stock. Until we know the specs of the job TOOLS AND TOOL VENDORS are immaterial. Some professionals (accountants and attorneys) get enamored with a certain planning technique or product and push it as aggressively as any salesperson.

Imagine you're building a custom house. As you sit down with your architect, you ask the architect what kind of nail gun the general contractor's carpenter is going to use while framing the house. That is what this attorney looked like to Susan. Like the architect, with each client, we develop a plan—a blueprint. And for each client we assemble a team of professionals who will work together to execute the clients wishes. Each team has a CPA and one or more attorneys, and other team members will be added as the project dictates. But NO ONE comes to the table with a preconceived notion of what tools will be used.

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