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CHARITABLE LEAD TRUST

The Charitable Lead Trust is a type of charitable trust that can reduce or virtually eliminate allestate tax on wealth passing to heirs. In order to accomplish this goal, you create a trust thatgrants to acharity or charities, for a set number of years, the first or “lead” right to receive apayment from the trust. At the end of the term of years, your children or grandchildren receivethe balance of the trust property—which often is greater than the amount contributed—free ofestate tax in most instances. Although the Charitable Lead Trust is a complex estate planningstrategy, the steps to implement it are few and simple from your perspective. Here is how one ofthe most frequently used Charitable Lead Trusts, the Charitable Lead Annuity Trust, operates:You, as grantors, create a Charitable Lead Trust as part of your revocable living trust planning.Upon the death of the survivor of the two of you, a substantial amount of property will pass tothe Charitable Lead Trust. The income beneficiary of the Charitable Lead Trust will be aqualified charitable organization, chosen by the two of you or by the survivor of you, named inyour revocable living trust. The charitable income beneficiary receives a fixed,guaranteedamount from the trust for a certain number of years (determined by you with the assistance ofyour legal and financial advisors). Generally, any charity that has received tax-exempt status through an IRS determination qualifies, but this is not always the case. It is possible for you toname a private foundation established by you as the charitable beneficiary. If so, you must havevery limited authority over which charity is to receive money from the foundation. Too muchcontrol while you arealive will result in adverse tax consequences

At the end of the Charitable Lead Trust’s term, the remaining assets in the trust pass to non-charitable trust beneficiaries such as children and grandchildren, free of estate and gift tax. Theseassets canpass outright to the beneficiaries, or can continue to be held in trust, either in newtrusts or in trusts previously established for the benefit and protection of beneficiaries.The charity will receive the same dollar amount each year, no matter how itsinvestmentsperform. The remainder interest ultimately passing to the heirs, however, will be affected by theperformance of the trust’s investments.

Charitable Lead Annuity Trusts are particularly suited for hard-to-value assets (such as realestate or family limited liability company interests) and assets which are expected to growrapidly in value.

SAMPLE PLANNING TOOLS

Family Limited Partnerships

Gift Trusts for Family Members

Lifetime Family Trusts

Grantor Retained Annuity Trust

Charitable Remainder Trust

Private Foundations

Sale to Grantor Trust

Beneficiary Defective Trust