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 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.
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 Self Regional
Healthcare by Future Focus.
Please report any problems to webmaster.
Revised:
July 10, 2008 15:50
.