CHARITABLE LEAD TRUSTS

A Charitable Lead Trust (CLT) is a good option if you'd like to establish a charitable fund but also want to transfer assets to heirs.

In the most common form of a Charitable Lead Trust, a donor creates a qualified trust document, names a trustee, and transfers assets to this trustee for a specified period of years or the life of an individual. During the term of the trust, the trustee makes annual payments to qualified charitable organizations equal to the annual payout specified in the trust document. At the end of the trust term, the remaining assets, including all unrealized appreciation, pass to the donor's heirs free of any further transfer taxes. By carefully selecting the payout rate and the length of the trust's term, the donor can greatly diminish or completely avoid the payment of any transfer taxes. The donor does not receive a charitable deduction for trust payments that are made to charity, but neither is the donor taxed on income earned by the trust. Charitable lead trusts offer philanthropic individuals a splendid method of combining their annual philanthropy with a tax-efficient means of transferring wealth to the next generation.

There is an additional form of Charitable Lead Trust, which does produce an income tax deduction in the year the trust is established, and at the end of the trust term returns the trust assets to the donor. Trust income is taxed to the donor each year the trust is in existence. Donors who desire a substantial charitable deduction in a single tax year often find this type of Charitable Lead Trust attractive. Contact our Donor Services department for additional details.

You might like to use our gift deduction calculator at the VCF Planned Giving Design Center (requires free registration) to determine the tax deductions you would receive for various types of gifts.

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