A person who wants to leave some assets to a charity, but still wants to have those assets be transferred to other beneficiaries after a period of time, would consider using a Charitable Lead Trust (CLT).
Also referred to as a “Front Trust”, the charitable beneficiary of the trust receives the income in “front” of the remaining, or ultimate beneficiaries. These beneficiaries, which are typically the donor’s children are referred to as “remaindermen” or “remainder beneficiaries”, because they receive their shares last. They must wait until the terms of the charitable beneficiary’s interest ends. As an example, John decides to leave the $100,000 to the America Heart Association, in the form of a charitable lead trust for a period of ten years. This organization will receive annual income payments from this $100,000. At the end of the ten-year period when the trust ends, his children, as “remaindermen”, will then receive the trust assets as gifts.
The primary purpose for setting up a CLT, is a substantial estate or gift tax savings. Simply put, there is a tax savings to be achieved, due to the length of the terms of the trust.
A CLT can be formed, while the donor is living, and known as an “inter vivos trust”. The key purpose would be to reduce the gift tax on the gift to the children, or other remainder beneficiaries. The trust can also be set up to take effect under the donor’s will, and in this case would become a “testamentary trust”.
When does it make sense to set up a CLT?
It is a great estate planning tool in those instances when you:
-Seek to reduce gift and estate taxes
-Want to leave some of your assets to charity.
-Don’t need immediate income.
-Want to increase the net worth of family members (eventually).
What are some of the advantages of a CLT?
-It can remove substantial assets from your estate, so that the appreciation of the property ultimately passes to the designated remainder beneficiaries.
-It can meet your long-term charitable giving objectives. It can be set-up so that annual distributions of a specific amount can be made to designated charities for a certain number of years.
-It can be coordinated with other estate planning tools to provide your heirs with assets.
Go To Page: 1 2
