A charitable lead trust (CLT) is an estate planning tool that allows you to support your favorite charities while preserving wealth for your beneficiaries. Unlike charitable remainder trusts, where the charity benefits after your lifetime, a CLT allows a charity to receive income from the trust for a specified term. Once that term ends, the remaining assets are passed to your designated beneficiaries, such as family members or loved ones.
At the Law Offices of Carey Thompson, PC, we help clients throughout Dallas-Fort Worth establish charitable lead trusts that align with their philanthropic goals while maximizing tax benefits and preserving wealth for future generations. Contact our office today to see whether CLTs may be the right choice for you.
What Is a Charitable Lead Trust?
A charitable lead trust is an irrevocable trust designed to benefit both charities and your heirs. The trust pays income to a charity for a set period, after which the remaining assets are transferred to your beneficiaries.
There are two main types of CLTs:
- Charitable Lead Annuity Trust (CLAT): Provides a fixed annual payout to the charity based on a percentage of the trust’s initial value.
- Charitable Lead Unitrust (CLUT): This trust provides a variable annual payout that is recalculated each year based on its asset value.
Both types allow you to support charitable causes while preserving significant assets for your heirs.
Benefits of a Charitable Lead Trust
Charitable lead trusts offer unique benefits that make them an attractive option for individuals who wish to balance philanthropy with wealth preservation. Some of the key advantages include:
- Immediate Charitable Giving: Your chosen charity benefits from annual payments during the trust term, allowing you to make an immediate impact on the causes that matter to you.
- Estate and Gift Tax Savings: The assets transferred to the trust can reduce your taxable estate, which may lower estate taxes upon your passing. Additionally, the value of the gift to your beneficiaries is reduced by the present value of the income stream paid to charity.
- Wealth Preservation: After the charitable term, the remaining assets in the trust are passed on to your beneficiaries, often at a reduced tax cost.
- Flexible Structure: CLTs can be structured to provide significant tax benefits based on the length of the charitable term, payout amounts, and asset growth.
At the Law Offices of Carey Thompson, we work with clients to tailor their CLTs to maximize these benefits while meeting their personal and financial goals.
How Does a Charitable Lead Trust Work?
Setting up a charitable lead trust involves a few essential steps. Each step is carefully designed to balance the interests of the charity and your beneficiaries while taking advantage of tax-saving opportunities.
- Transfer of Assets: You place appreciated assets, such as cash, stocks, or real estate, into the trust. The trustee manages these assets and ensures the trust generates income for the charity during the term.
- Charitable Payments: The trust makes annual payments to the designated charity. Depending on the trust structure you choose, these payments can be fixed (as with a CLAT) or variable (as with a CLUT).
- Tax Advantages: You can claim an income tax deduction or reduce your estate and gift taxes based on the value of the payments made to charity during the trust term. The longer the trust pays the charity, the greater the potential tax benefits.
- Transfer to Beneficiaries: Once the charitable term ends, the remaining trust assets are distributed to your beneficiaries. The assets typically pass to them at a reduced tax rate, preserving wealth for future generations.
This structure allows you to benefit from significant tax savings while supporting charitable causes and ensuring your heirs receive the remaining trust assets.
Who Should Consider a Charitable Lead Trust?
Charitable lead trusts are not for everyone, but they can be particularly beneficial for individuals who:
- Wish to support a charity over an extended period while still passing assets to their family.
- Have highly appreciated assets and want to reduce their taxable estate or gift taxes.
- Are looking for a way to leave a lasting philanthropic legacy while also preserving wealth for future generations.
- Are seeking significant estate planning and tax-saving opportunities through charitable giving.
At the Law Offices of Carey Thompson, we frequently recommend CLTs for clients who have a long-term commitment to charitable giving but also wish to preserve wealth for their loved ones. We can help determine if a CLT aligns with your financial and philanthropic objectives.
Setting Up a Charitable Lead Trust
Establishing a charitable lead trust requires careful planning to ensure it meets your financial goals while providing for the charity and your beneficiaries. Our experienced estate planning attorneys will guide you through every step, from choosing the right trust structure to selecting the best assets to fund the trust. When you partner with us, you can expect to receive:
- Customized Planning: We take the time to understand your unique goals and recommend the best approach to structuring your CLT. This includes deciding on the term, payout amounts, and the best assets to transfer into the trust.
- Tax Strategy: We work with your financial advisors to maximize the tax advantages of the trust, whether you’re focused on reducing income, estate, or gift taxes.
- Ongoing Support: Once your CLT is established, we provide ongoing legal guidance to ensure the trust operates smoothly, and we can assist with any adjustments that may be needed as circumstances change.
Trust us to help you establish a charitable lead trust that meets your philanthropic and financial objectives.
Contact Us for Help with Charitable Lead Trusts
If you’re considering a charitable lead trust as part of your estate plan, the Law Offices of Carey Thompson is here to help. Our experienced attorneys will work with you to create a customized CLT that supports your charitable goals while preserving wealth for your beneficiaries. Contact us today to schedule a consultation and explore how a charitable lead trust can fit into your overall estate plan.