Charitable Lead Trust
Convert high income taxes into a creative solution.
A charitable lead trust (CLT) is an exceptional option if you want to maximize ministry impact in two planning scenarios: either passing assets to heirs or creating options when income taxes are high.
By transferring cash or property to a CLT either during your lifetime or through your estate, you may reduce or avoid gift or estate taxes and create a significant gift for ministry. It provides current income payments to a charitable beneficiary, followed by distribution to chosen personal beneficiaries at the end of the trust period.
Alternatively, a CLT can work well if you have a spike in income, or are in the last years of high income before retirement. When you know you want to make predictable annual gifts to ministry for a number of years, the CLT can efficiently replace taxes with annual gifts while at the same time providing for your future needs.
A charitable lead trust tends to fit families in one of two situations.
Unlike most giving structures, a charitable lead trust is built around one of two very different scenarios. Donors who use a CLT well usually recognize themselves immediately in one of them.
The first is the high-income year. A business sale, a stock option vesting, a large bonus, the year you retire and recognize a year of compressed income — these are the moments a CLT can absorb a tax burden that would otherwise hit hard. The deduction is taken upfront, the ministry payments begin, and the income spike is offset.
The second is the long view. A family with significant appreciated assets and adult children or grandchildren they intend to provide for can use a CLT to fund ministry for ten, fifteen, or twenty years while reducing the gift and estate tax exposure on what eventually transfers to heirs. The assets are removed from the taxable estate at today’s valuation. The years of growth happen inside the trust, on the way to your family.
A few signs this might be a good fit for your situation:
- You are looking at a year of unusually high income, and a sizeable upfront charitable deduction would meaningfully change your tax picture.
- You hold significantly appreciated assets, and you want to fund ministry now while transferring the underlying value to your children or grandchildren later with reduced tax impact.
- You have a clear ministry purpose for the next decade or more. A CLT is not the right structure if you are still figuring out where you want to give.
- You have advisors in place. A CLT involves your attorney, your CPA, and Cru Foundation working together. Donors who attempt it without that team in place tend to be disappointed.
If one of those two scenarios is your scenario, a conversation is worth having.
Benefits of a Charitable Lead Trust
Receive a gift or estate tax charitable deduction
Pass inheritance on to family with reduced or zero estate taxes, or achieve annual giving goals through income tax savings while also providing for your future needs
Establish a vehicle that supports ideals and programs of eternal worth that will outlast your lifetime.
A simple structure that
does two jobs at once.
Contribute your property to fund a trust that pays Cru income for a number of years.
Reduce income or estate taxes
After a period of time, your family receives the trust assets plus any additional growth in value
If you have any questions about charitable lead trusts, please contact us. We would be happy to assist you and answer any questions you might have and to provide you with an illustration demonstrating your specific tax benefits.
Types of Agreements
Two types of agreements are available for the avoidance of estate and gift taxes:
- A variable income agreement, which generates income for Cru based upon a percentage of the trust assets as valued annually.
- A fixed income agreement, which generates income for Cru based upon a percentage of the assets originally transferred to the trust.
In addition, the agreement can be established:
- During your lifetime, providing an added advantage of removing the income-producing asset from your taxable income stream if you do not need it and placing the property in the hands of your personal beneficiaries for their use at an earlier date, or
- Through your estate, at the time of your passing.
FAQs
a. Not necessarily. However, a charitable lead trust established for the avoidance of estate and gift taxes is only applicable for individuals whose estates are large enough to be subject to estate and gift taxes.
b. For those wanting to convert income taxes into annual gifts, an income of $250,000 or more will typically get the best results.
It is important to understand that the financial security of Cru is immaterial to the financial security of the trust. Property is held by an independent trustee to benefit Cru and the individuals you select, and the strength of the property held by the trust is what provides the financial security.
If your trust is a variable income agreement, the payment to charity will be determined by applying a fixed percentage to the value of the trust assets, as valued annually. If your trust is a fixed income agreement, the annual income payments to charity will be determined by applying a fixed percentage to the value of the trust assets when you fund the trust.
Tell us about the situation behind your interest in a charitable lead trust.
A charitable lead trust is rarely the right starting point for a conversation. The right starting point is your situation — the year you are looking at, the family you are planning for, the assets you are holding, and what you hope to accomplish with them. Fill out the form to start a conversation and a specialist from our team will be in touch.
