Charitable Lead Trusts

In a sense, a Charitable Lead Trust (CLT) is the reverse of a Charitable Remainder Trust.  A present income interest is established in favor of a charitable organization for a period of years or the lifetime(s) of one or two individual(s).  At the end of that period, the remainder interest reverts back to the donor or is transferred to a non-charitable beneficiary.  Typically, it can be advantageous in transferring assets to family members of a younger generation.  The charity’s lead interest can be in the form of a guaranteed amount each year (charitable lead annuity trust) or determined by a fixed percentage of the annually re-valued trust assets (charitable lead unitrust).  If income is insufficient to make these payments, trust principal must be used to make up the difference.  CLT’s can yield significant estate and gift tax savings and can be appropriate for transferring appreciated property to family members at low gift and estate tax costs.

A Charitable Income Trust is a lead trust where the charitable income beneficiary is entitled to income only and there is no invasion of trust principal.  They are most useful in transferring property to a family member, typically of the next generation, with a reduced transfer tax cost.

It should be noted that the tax ramifications of lead trusts are complicated and varied and, as part of a prudent estate plan, should only be considered with the guidance of your estate planning professional.

For more information, contact Clara Nyman,  Director of Development at (212) 870-4938 or cnyman@jhha.org.