Charitable
Lead Trusts Explained
You
can fund a charitable lead trust 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 your public radio station. 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
your station. Payments from a CLT can be used to fund operating costs, development
of new 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.
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to Charitable Lead Trust story.