Charitable Lead Trusts (CLTs)

Charitable Lead Trusts (CLTs)

A Charitable Lead Trust (CLT) is an irrevocable trust that provides for a charitable organization to receive income from the trust for a specified period, after which the remaining assets are distributed to non-charitable beneficiaries, typically family members.

In a CLT, the trustmaker (also known as the grantor) contributes assets to the trust and designates a charity as the lead beneficiary, receiving either a fixed annuity or a percentage of the trust’s value annually during the trust term. This structure allows for potential tax benefits, as the grantor may receive an income tax deduction based on the present value of the charitable interest. The trust terminates after the specified period, and the remaining trust assets are then transferred to the non-charitable beneficiaries, often resulting in reduced estate taxes.

For example, if a grantor establishes a CLT for a 10-year term with a charity receiving 5% of the trust’s assets annually, after 10 years, the remaining assets will be distributed to the grantor’s heirs.