Gift Planning
Charitable Lead Trusts What is a Charitable Lead Trust (CLT)?
The 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 the
Bethesda Foundation by Future Focus.
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Revised: February 21, 2005 15:01. |
