Define: Charitable Lead Trust

A Charitable Lead Trust is a legal arrangement where a donor transfers assets to a trust, which then pays an annual income to a charitable organisation for a specified period. After this period, the remaining assets are distributed to non-charitable beneficiaries, such as family members or other individuals.

In a CLT, the donor designates a charitable organisation to receive annual payments from the trust for a predetermined number of years or for the donor’s lifetime. At the end of the trust term, the remaining assets are distributed to non-charitable beneficiaries, as specified by the donor.

Establishing a CLT allows the donor to support a charitable cause while potentially reducing estate taxes. It also provides an opportunity to pass on assets to non-charitable beneficiaries at a reduced tax cost.

Yes, you can choose any qualified charitable organisation to receive payments from the trust. However, it is important to ensure that the organisation meets the requirements set by the Internal Revenue Service (IRS) to qualify for tax deductions.

Yes, there are potential tax advantages. The donor may be eligible for an income tax deduction based on the present value of the charitable payments made from the trust. Additionally, any appreciation in the trust assets during the trust term is excluded from the donor’s estate for estate tax purposes.

In most cases, once the charitable organisation is designated, it cannot be changed. However, it is advisable to consult with an attorney or financial advisor to understand the specific terms and conditions of your trust.

If the designated charitable organisation ceases to exist during the trust term, the trust document should include provisions for an alternate charitable organisation to receive the payments. It is crucial to have proper legal guidance when drafting the trust document to address such contingencies.

No, as the donor, you cannot receive any income from the trust during its term. The purpose of a CLT is to provide income to a charitable organisation, not the donor.

Yes, a variety of assets can be contributed to a CLT, including cash, securities, real estate, or other valuable assets. However, it is important to consult with a professional to determine the most appropriate assets to contribute based on your specific circumstances.

There are no specific restrictions on the duration of a CLT. The donor can choose a term that suits their goals, whether it is a fixed number of years or their lifetime. However, it is important to consider the tax implications and the impact on non-charitable beneficiaries when determining the trust term.