Definition
A charitable lead trust pays income to charity for a period, then passes the remaining assets to the donor's heirs, often at reduced gift or estate tax cost.
How It Works
It is essentially the reverse of a charitable remainder trust. Charity receives payments first for a set term, and at the end the remaining assets, including any growth, pass to heirs. The structure can reduce the taxable value of the transfer to heirs.
Example
A donor funds a CLT that pays a charity for 15 years, after which the appreciated remainder passes to their children with reduced transfer tax.
When It Works Best
It works best for wealthy families who want to support charity now and transfer appreciating assets to heirs at lower transfer tax cost, especially in low interest rate environments.
Who It Applies To
High-net-worth families with charitable intent and estate planning goals.
Watch-Outs
The structure is complex, irrevocable in its charitable commitment, and its benefits depend on interest rates and asset performance.
