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What is a Charitable Lead Trust
(CLT)?
A 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. The trust
is established for a specified number of years, the lives of one
or more individuals, or a combination of the two. The income from
the trust 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).
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.
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.
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.
Please note, individual
financial circumstances will vary. The information on this site
does not constitute legal or tax advice. Donor stories and photographs
are for purposes of illustration only. As with all tax and estate
planning, please consult your attorney or estate specialist. All
material is copyrighted and is for viewing purposes only. Use of
this site signifies your agreement with the terms
of use. The content in this Planned Giving section has been
developed for California Symphony by Future
Focus. Please report any problems to webmaster.
Revised: March 20, 2007 22:06.
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