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CLT is a powerful way to make a future transfer of assets to your heirs at a significantly
reduced gift and estate tax cost, while also supporting your charity with income.
During a specified number of years, the lives of one or more individuals, or a
combination of the two, all contributions are paid to the charity of your choice.
At the end of the trust term, the assets pass to beneficiaries named by the donor.
The donors choose the trustee. You can fund a CLT with cash, publicly traded
securities, closely-held stock, income-producing real estate, partnership interests,
or a combination of the above. You can establish a CLT during your lifetime, or
as a testamentary trust through your will. A lead trust may be structured to provide
a fixed dollar contribution annually (CLAT) or a fixed percentage contribution
(CLUT).  Two
Types of Lead Trusts
There are two basic types of Lead Trusts: Non-Grantor
and Grantor. In a non-grantor CLT, the most common type, the trust assets
revert to your children, grandchildren, or other heirs at the end of the trust
term. A non-grantor CLT provides a gift tax charitable deduction and is useful
in reducing the cost of intergenerational wealth transfers. In a grantor
CLT, the trust assets revert to you, rather than to your heirs, at the end
of the trust term. Donors creating grantor CLTs receive a large charitable contribution
income tax deduction. Such a gift structure may be particularly useful if you
wish to make a multi-year pledge and accelerate future deductions into the current
year. What Are The Advantages of a Non-Grantor CLT?
For people who
have significant assets, a CLT provides gift and estate tax relief: - You
receive a charitable gift tax deduction for the present value of the annual trust
payments to the charity. The amount of this gift tax deduction is typically a
large percentage of the total assets contributed to a CLT, leaving only a small
portion of the gift amount subject to the gift tax.
- Because
the gift tax deduction and the amount subject to gift tax is determined at the
time the assets are contributed to the CLT, any appreciation of the assets that
takes place during the term of the trust is not subject to additional gift or
estate tax. As a result, the amount that you ultimately transfer to your heirs
may be much larger than the amount upon which the gift tax is imposed.
 None
of the income earned by a CLT is taxable to the grantor; therefore, the grantor
also does not receive a charitable income tax deduction. In effect, this results
in a reduction of your taxable income over the trust term.
- The
assets you contribute to a CLT are removed from your taxable estate, reducing
your estate tax exposure.
- Unlike most other gift planning arrangements,
the benefits of a CLT are immediate to the charity. Payments from a CLT can be
used to fund operating costs and other programs as well as endowed funds.
How
Do I Create a CLT?
Donors establishing a CLT should be advised by an attorney
who is experienced in the area of charitable trusts and estate planning. Please
contact us by phone or e-mail so that we can assist
you or use our response/request form. Return
to story on Charitable Lead Trusts.
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