Estate Planning

What is a Charitable Lead Trust?

A Charitable Lead Trust (CLT) is a type of trust that allows a Donor to provide benefit to charity as well as their family or other beneficiaries. A CLT is irrevocable, meaning generally it cannot be modified, amended, or terminated.

Depending on the design, a CLT can provide multiple benefits to the Donor, such as an immediate charitable income tax deduction and a reduction of projected estate taxes.

How does it work?

  1. The donor creates a CLT and transfers in assets, like cash, stocks, or real estate.

  2. Annual fixed distributions are made from the CLT to one or more charities for a set number of years, or the Donor(s) lifetime.

  3. When the term of payments ends, the remaining assets in the CLT transfer to the remainder beneficiaries, typically family or loved ones.

Grantor vs. Non-Grantor Trusts

A CLT can be established as a Grantor or Non-Grantor Trust. In a Grantor CLT, the Grantor will be eligible for an immediate charitable income tax deduction. The annual investment earnings inside the CLT will be taxed to the Grantor. In a Non-Grantor CLT, the Grantor will not receive a
charitable income tax deduction; however, the trust can take a tax deduction for the distribution of funds to the charitable beneficiary, with no limits on the deduction.

CLTs are one of the most impactful income tax and estate planning strategies for those with charitable desires. However, because of the many different variations, CLTs are also one of the least understood charitable planning techniques. Donors should work closely with their financial and tax advisors to determine the appropriate design for their circumstances.

Investment Advisory Services offered through Trek Financial LLC., an (SEC) Registered Investment Advisor.

Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 23-572

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