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Charitable Lead Trusts

Provide Income to Charity First and Then Receive the Gift Back

 

A Charitable Lead Trust (CLT) is often described as being the opposite of a Charitable Remainder Trust. This type of trust pays a specified rate of income to a charity for a defined period of time, and when the trust terminates, the assets go back to the donor or are transferred to family. They may be either a unitrust or an annuity trust type. Because of their complexity, CLTs are generally used by individuals with larger estates and who are very charitably inclined.

 

The most commonly used type is called the Non-Grantor CLT and the remaining assets are given to family at the termination of the trust. Typically, this type is funded with assets that are expected to appreciate significantly over time and then be transferred to family with reduced gift- or estate-tax exposure. Unlike a Charitable Remainder Trust, a Non-Grantor CLT does not provide an income tax deduction for the donor, but the income earned in the trust is not attributed to the donor. The trust itself is taxed according to trust rates. The trust receives an income tax deduction for the income paid to charity.

 

The second type is a Grantor CLT and the trust assets are returned back to the donor when terminated. The trust provides an income tax deduction on its creation to the donor (based primarliy on the payout rate and the length of the trust period); however the grantor is taxed on the income paid to the charity. There are more limited uses for Grantor CLTs in both the unitrust and annuity variations, and therefore, a majority of donors use the Nongrantor type.

 

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See our tax benefits illustration giving you a much closer breakdown of our different giving instruments and how they can benefit your taxes.

 

 


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