Charitable Lead Trusts

CHARITABLE TRUSTS are a very popular estate tool for charitable-minded individuals. A Charitable Lead Trust (CRT), more formally called a “Split Interest Trust” under the law, is an irrevocable taxable Trust. In a Charitable Lead Trust, you as the donor transfer an income (or “lead”) interest to an IRS-qualified charitable organization for a specified amount of time. Either you or the Trust must pay tax on the Trust income. At the end of the Trust term, the Trust assets either revert back to you or they are distributed to one or more non-charitable beneficiaries designated by you in the Trust agreement.

A Charitable Lead Trust is a powerful instrument for individuals who anticipate high estate and gift tax liabilities in transferring their wealth to their heirs. In these cases, a Charitable Lead Trust provides an excellent method for passing assets to heirs at a reduced transfer tax, while making a significant gift to a charitable organization.

The two main types of Charitable Lead Trusts are the Grantor Lead Trust (GLT) and the Non-Grantor Lead Trust (NGT). A Grantor Lead Trust provides an income tax deduction, while a Non-Grantor Lead Trust provides a gift tax deduction. Each type of Trust may be either a Charitable Lead Annuity Trust (CLAT) or a Charitable Lead Unitrust (CLUT).

Charitable Lead Trusts are often viewed as the opposite of Charitable Remainder Trusts. Instead of providing payments to you, with the remainder going to a charitable organization, the Charitable Lead Trust makes payments to your favorite charity for a term of years.