Rare But Useful: Planning with Charitable Lead Trusts

“Charitable lead trust” is far from a household term, and you might not run across the need for one very often in your practice. They can come in handy in certain client situations, however. For clients who want to enjoy charitable giving during their lifetimes and reduce estate and gift taxes on highly appreciating assets, a charitable lead trust, or CLT is worth a look.

CLTs may be especially useful if:

• The client, whose net worth is likely to be subject to estate tax, owns rapidly appreciating assets (such as pre-IPO stock).
• The client wants to transfer significant wealth to heirs in a tax-efficient way. 
• The client wants to make immediate and meaningful charitable gifts while they are living.

A client like this could establish a CLT and name a donor advised fund (or other type of fund*) at The Community Foundation as the income beneficiary. The CLT would make fixed annual payments to the donor’s fund for a term of years. The fund, in turn, could support the client’s favorite charities via the client’s grant recommendations (for a donor advised fund) or other charitable intentions.

At the end of the trust term, any remaining assets in the CLT would pass to the client’s children or other heirs, often without triggering additional gift or estate tax, assuming the trust was structured properly and investment performance meets or exceeds IRS assumptions.

And while CLTs are generally subject to private foundation rules, including strict prohibitions on self-dealing with “disqualified persons,” the IRS has emphasized that a public charity (including a donor advised fund sponsor) is not considered a disqualified person for these purposes.  

CLTs are just one of many charitable giving vehicles through which The Community Foundation can help your clients achieve their charitable and estate planning goals. Please reach out to our philanthropic advisory team any time for more information.  

*CLTs can also support designated funds in which one or several nonprofit organizations are the recipients, or preference or unrestricted funds to support an issue area (homelessness, the arts, youth programs, etc.) or respond to needs and opportunities in the community.