Bernetich, Hatzell, & Pascu, LLC.

Charitable Lead Trust

A Charitable Lead Trust (CLT) is a trust created by you during your lifetime or in your will.  During the term of the trust, annual distributions are made to one or more charitable organizations (which could include your own Family Foundation).  At the end of the term of the trust, the trust would terminate and your beneficiaries would receive the remaining balance.  The amount of the annual annuity will be based on various factors in existence at the time that the trust is created including the Applicable Federal Rate (the rate, as provided by the IRS, used to determine the charitable deduction).

The CLT is not exempt from income tax.  Instead, the trust would receive an income tax deduction each year for the amounts distributed to the charitable organizations.

If the CLT is created in your will, your estate would receive a charitable deduction based on the present value of the amounts passing to the charitable organizations which would reduce the size of your taxable estate and therefore reduce the amount of estate taxes due.

There are two types of CLTs, a Charitable Lead Annuity Trust (CLAT) and a Charitable Lead Unitrust (CLUT).

With a CLAT, the amount distributed each year is a fixed percentage of the value of the assets passing to the trust upon creation of the trust.  All of the appreciation in excess to the Applicable Federal Rate is preserved for the remainder beneficiaries.

With a CLUT, the amount distributed each year is a fixed percentage of the net fair market value of the trust assets determined annually.  A portion of the appreciation is distributed to the charitable beneficiaries of the trust.