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Planned Giving
What
Are Charitable Lead Trusts (CLTs)?
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 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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