The Charitable Lead Trust
This type of gift arrangement allows you to direct gifts to for a specified period of time and, in turn, either receive a charitable deduction now for gifts made in subsequent years or a reduction in gift or estate taxes on property you wish to pass to heirs.
Under this plan, you irrevocably transfer assets to a trustee and provide that payments be made to for a certain number of years (or until the end of your or another's life). Then the principal is distributed to your children, grandchildren, or other heirs. The principal passes to your heirs at greatly reduced gift- and estate-tax rates and sometimes escapes them altogether. The charitable lead trust may appeal to individuals who wish to make a gift but retain the property in their family.
Charitable lead trusts (CLTs) are simple in concept, but are complex gift- and estate-planning devices due to the many technical drafting requirements of the IRS. We recommend you consult with an attorney who specializes in trusts and estates with experience in CLTs.
There are two types of charitable lead trusts: the grantor lead trust and the more popular nongrantor lead trust, which was made famous by Mrs. Jacqueline Kennedy Onassis.
Most donors who use CLTs to accomplish their philanthropic and estate-planning objectives opt to create a qualified CLT. Many requirements must be met for a CLT to be qualified, but here are a few major considerations:
- The payments (gifts) to the must be an annuity interest (fixed-dollar amount annually) or unitrust interest (fixed percentage of the fair-market value of the trust assets determined annually). There are no minimum or maximum payout rates.
- The term of the trust (the number of years in which gifts will be made) must be measured by the life or lives of a person or persons living when the trust is created or a specified number of years.
- The charitable beneficiary must be an organization described in the appropriate sections of the IRS Code. The Wooster Foundation is a qualified charitable organization for the support of .
Please note: Because the federal estate tax has been repealed for 2010, there is no current estate tax in 2010 for the gifts described on this page. However, the consensus opinion among professionals is that Congress will enact an estate-tax law that may be retroactive to January 1, 2010. It is very important that you seek the advice of your estate-planning attorney to determine what changes, if any, need to be made to your existing estate plans, and then again if Congress reinstates the estate tax sometime later this year.
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