Charitable Lead Trusts

A charitable lead trust is a gift where you give the income (or partial liquidation) an asset for a set period of time, after which time the remainder either returns to the donor/spouse or passes on to heirs.

If the trust remainder returns to the donor/spouse, it is called a grantor lead trust:

Savvy Donor: Donor Advised Funds

There are three types of CLTs. To learn more about each, read below.

Grantor Lead Trust

If the trust remainder returns to the donor or spouse, it is called a Grantor Lead Trust, where:

• The gift generates an income tax deduction in Year 1.
• The trust is not tax-exempt, so sale of assets are taxable to the donor-grantor.
• Income to the charity is not deductible to the trust or the donor (it is accounted for in the Year 1 charitable deduction).

Non-Grantor Lead Trust

If the trust remainder returns to children or heirs, it is called a non-grantor lead trust, which:

• Generates a gift tax deduction, applied against the projected remainder passing to heirs.
• Receives income tax deductions equal to the payments to charity, offsetting any income earned by the trust; any annual income tax or long-term capital gains tax is paid by the trust.

Super-Grantor Lead Trust

If the donor of a Non-Grantor Lead Trust wishes to receive a Year 1 charitable deduction (like a Grantor Trust) but still have the remainder pass to heirs (like a Non-Grantor Trust), they can establish a Super-Grantor Lead Trust, which:

• Reserves the donor's right to revoke the beneficiaries’ interest, which makes the Non-Grantor Trust be taxed as a Grantor Trust.