Defining a charitable lead trust

By Emanuel J. Kallina, II, Guest columnist  A charitable lead trust (CLT) is a vehicle by which a donor irrevocably transfers assets to a trust; the trust then makes income payments no less than annually from those transferred assets to a charity for a set term. The trust may be structured two ways: as a […]

By Emanuel J. Kallina, II, Guest columnist

 A charitable lead trust (CLT) is a vehicle by which a donor irrevocably transfers assets to a trust; the trust then makes income payments no less than annually from those transferred assets to a charity for a set term.

The trust may be structured two ways: as a charitable lead annuity trust (CLAT), where the charity receives a fixed dollar amount or a percentage each year of the fair market value of the initial trust assets, or a charitable lead unitrust (CLUT), where the charity receives a fixed percentage of the fair market value of the assets, determined annually. In either case, at the end of the trust term, the remaining trust assets pass to beneficiaries, typically the grantor’s children or grandchildren.

 Benefits to partner:

Provides assets for use by a favorite charity or ministry,
Estate- or gift-tax deduction equal to the charitable income interest and possibly an immediate income tax deduction, and
Ability to pass assets to descendants free of estate and possibly gift tax.

Benefits to ministry:

Commitment by donor of an immediate income stream for a set term,
Depending on how the CLT is structured, trust income can be taxed to donor and not CLT, thereby preserving principal.

 CLTs are useful tools that not only benefit the ministry but also the supporter, making it an ideal vehicle for the charitably-minded who are also looking for a way to benefit family.

 Emanuel J. Kallina II is an attorney in Townson, Md., specializing in estate planning and tax law.