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​​​​© 2019 by Lara Sass & Associates, PLLC 

 

The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

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Charitable Lead Trust (CLAT and CLUT)

 

A Charitable Lead Trust (CLT) gives a charity the right to receive funds for a fixed number of years, after which the funds pass to family members.  The charity can be a private family foundation.  The amount payable to charity can be either a fixed dollar amount each year (charitable lead annuity trust or CLAT), or a percentage of the value of the assets as redetermined each year (charitable lead unitrust or CLUT).  Usually, a CLT is used to pass assets to family members at a reduced gift tax cost, while benefitting a charity.

 

A CLT can be set up during the donor's lifetime, or on the donor's death.  If the CLT is set up during the donor's life as a grantor trust for income tax purposes (so the donor is taxed on the income earned by the trust each year), then the donor can claim an income tax deduction when the trust is funded, but the donor will not get an income tax deduction as distributions are made to charity.  If the trust is not set up as a grantor trust for income tax purposes, then the donor gets no income tax deduction when the trust is funded, but distributions to charity from the trust will be deductible against the trust's income.

 

More frequently, a CLT is set up under a revocable living trust or Will.  The decedent's estate gets an estate tax deduction for a portion of the assets going into the trust.  The amount of the deduction will depend on what kind of CLT (unitrust or annuity trust) is used, the payout rate, interest rates when the trust is funded and the length of the charitable term.  A CLT works well if the donor has assets which are likely to increase in value far faster than the IRS assumed rate of interest, or if valuation discounts can be claimed to reduce the value of the assets going into the CLT.