What is a Charitable Lead Trust (CLT)?
An agreement through which a donor makes a transfer of cash or property to a CLT (a separate legal entity created by the donor). The trustee (manager) of the CLT manages and invests the CLT assets and makes payments to the church or Christian ministries of the donor’s designation for a specified period of time. When the CLT terminates, assets remaining in the trust are transferred to family or other beneficiaries named by the donor. MBF may serve as trustee of a CLT providing asset management and trust administration.
A donor wants to make a gift to their church or a Christian ministry for a period of time, and then transfer assets to family in a manner that reduces gift or estate taxes.
Donor contributes property to a CLT that will make distributions to the church or Christian ministries of their designation for a number of years and then ultimately distribute the property to the donor’s family.
Appreciation to Family – A donor gives property to a CLT and that property plus growth passes to his or her family with no additional tax.
Tax Deduction – Donor receives a current federal gift or estate tax deduction for the present value of the payments that will go to charity.
A person who wants to pass specific property with growth to family at reduced gift or estate tax cost. Ideal for a person with a taxable estate.
Taxation – A CLT is a taxable trust (unlike a CRT). Each year the CLT will report its income and take a deduction for the amount that it distributes to charity. Any excess income is taxable.
Duration – A CLT can last for the lifetime of one or more individuals or for a specific term of years.
Annuity vs. Unitrust Payout – A Charitable Lead Annuity Trust (CLAT) pays a fixed amount to charity each year. A Charitable Lead Unitrust (CLUT) pays an amount equal to a fixed percentage of the trust value at the beginning of each year.
Lead Trust Types – In addition to the Family CLT described above, a Grantor CLT may be arranged. Both benefit charity but they accomplish different estate tax and income tax management objectives.
Want more information?
Download a printable version of Charitable Lead Trust information. PDF document.