Charitable Trusts, Day Four

Two days ago we began covering Split-Interest Trusts: trusts that have both charitable and non-charitable beneficiaries.  These types of trusts are valuable for those who have both philanthropic and family needs to attend to; they both want and need to care for their family, but also want to take advantage of the tax breaks they’d receive from setting up some form of Charitable Trust.

There are several types of Split-Interest Charitable Trusts; today we’ll cover the Charitable Lead Trust.

A Charitable Lead Trust is an estate planning tool that is philanthropic in nature.

Charitable Lead Trusts are designed to provide payments to one or more charities for a fixed number of years, and then, at the end of the period set forth for charitable purposes, the remainder of the trust assets pass through to non-charitable beneficiaries, such as family members.

To explain more fully…since a Charitable Lead Trust is first and foremost a trust, the grantor must first establish the trust, and then transfer title of all assets into the trust.  From that trust, payments are made from the trust to the donor’s designated charity or charities.  This payment is made on an annual basis.

The trust derives its name because the charity or charities are provided with the lead interest in the trust, whereas the non-charitable beneficiaries receive the remainder interest in the trust.

Designating assets into the trust and assigning those assets in this way can shelter the assets—and ultimately the non-charitable beneficiaries—from a certain portion of estate taxes.

As with any Charitable Trust, Charitable Lead Trusts must comply with strict federal tax laws; for that reason I stress that this is not a do-it-yourself proposition.

Comments are closed.