A Charitable Lead Trust (CLT) is a type of irrevocable trust designed to benefit a charitable organization for a specified period, with the remaining assets eventually going to non-charitable beneficiaries, typically family members or heirs.
In a CLT, the trustmaker (grantor) donates assets to the trust, which then pays a fixed amount or a percentage of its assets to one or more designated charities over a set term. This term can be measured in years or until the death of a specific individual. After the term expires, the remaining assets in the trust are transferred to the non-charitable beneficiaries, who may be family members or other individuals.
One of the primary benefits of a CLT is the potential for significant tax advantages. The grantor may receive a charitable income tax deduction for the present value of the charitable interest, which can reduce the overall taxable income. Additionally, since the assets in the trust are removed from the grantor’s estate, this can also lower estate taxes, making CLTs a useful estate planning tool for those looking to support charitable causes while also managing their wealth transfer to heirs.
For example, if a grantor establishes a CLT and contributes $1 million worth of stocks, the trust might pay 5% of the value of the trust assets annually to a chosen charity for 10 years. After that period, the remaining value of the trust, which may have appreciated, would go to the grantor’s children or other designated beneficiaries. This structure allows the grantor to fulfill philanthropic goals while also preserving family wealth.
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