Charitable Lead Trusts
Goal: Pass assets to heirs at potential tax savings
Benefit: Charitable tax deduction, favorable estate tax circumstances
Diagram
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. The trust is established for a specified number of years, the lives of one or more individuals, or a combination of the two. The income from the trust 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.
We would like to help make certain your intentions are executed accordingly. For more information about the importance of having a will, please email or call the Vice President of Development, Sharon A. Jones, at 352 379-6226. We are happy to answer questions and offer suggestions confidentially based on your personal circumstances.
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