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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. 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 contibution 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.
Please note, individual
financial circumstances will vary. The information
on this site does not constitute legal or tax
advice. 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 McMurry University by Future
Focus. Please report any problems to webmaster.
Revised: October 24, 2006.
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