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Planned Giving - Hope for the Future

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. During a specified number of years, the lives of one or more individuals, or a combination of the two, an annuity or a fixed percentage of the trust assets is 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.

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 current expenses 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 Scenario Four - Charitable Lead Trusts

For additional information, please call Wilfredo Lacro, Major Gifts and Gift Planning Officer, HOPE Services at 408-284-2842 or wlacro@hopeservices.org