The Charitable Lead Trust

The Charitable Lead Trust (CLT) is often thought of as the opposite of a Charitable Remainder Trust.

Unlike a Charitable Remainder Trust, which pays an income stream to a non-charitable recipient during its term with the remainder going to charity, a Charitable Lead Trust pays an income stream to a qualified charity during its term, with the remainder going to a non-charitable recipient.

While this analogy is useful to some extent, there are sufficient differences between the two types of trusts as to warrant treating them as unrelated.

Due to the extremely technical and complex nature of the Charitable Lead Trust, we will only examine the most basic elements that give them their unique nature.

Key Elements of a Charitable Lead Trust

  • The Charitable Lead Trust is an Irrevocable Trust
  • The CLT provides an Income stream during its term to a qualified Charitable Organization
  • The Income stream must either be in the form of an Annuity (a sum certain paid not less often than annually), or a Unitrust (based on a percentage of the fair market value of the trust assets)
  • The Income stream is paid over either a Term of Years; the Lives of one or more persons; or a combination of both
  • At the end of the applicable period, the trust assets are paid either to the Grantor (the original Donor), or to one or more non-charitable beneficiaries
  • There are no minimum or maximum annuity or unitrust payout requirements (unlike the CRT)

Additional features of the Charitable Lead Trust are based on technical and overly complicated IRS rules and regulations.

These include the possibility of a current Income Tax deduction for amounts going to qualified Charitable Organizations, as well as Estate and Gift Tax considerations for trust assets passing to the Donor or a non-charitable beneficiary.

As always, we welcome the opportunity to speak with you in person regarding whether or not such charitable giving techniques would be of value to you and your family.