What you should know about a charitable lead trust

What you should know about a charitable lead trust

On Behalf of | Nov 14, 2022 | Charitable Giving, Trusts

A charitable lead trust (CLT) is a type of trust that is commonly used for charitable giving and tax planning purposes. A New York donor creates a CLT by transferring property to a trustee for the benefit of a charity.

How a CLT works

A charitable lead trust sets up a schedule of payments to for a qualified charity for a number of years. At the end of that period, the assets in the trust are distributed to the trust’s beneficiaries, who can include the donor, his or her family members or other individuals. The trust’s terms can specify the investment, management and payments that are to be made to the charity.

Advantages and disadvantages of a charitable lead trust

If you are looking to reduce the size of your taxable estate and increase the amount of money that will go to your heirs, a charitable lead trust may be a good option for you. However, there are some disadvantages to consider before setting up a CLT. One is that you might not be able to access the trust assets during the payout period, and there is always the possibility that the trust’s beneficiaries could end up with less money than they would have if you had made a direct gift to them.

Many trusts, charitable giving and tax planning specialists will tell you that in a charitable lead trust the donor cannot revoke or change the terms of the trust. This means that once you have set up a CLT the trustee and the charity are legally entitled to the payments as specified in the trust agreement.

Setting up a charitable lead trust can be a good way to support your favorite charity while also providing for your loved ones. However, these are some of the things that you need to keep in mind before establishing one.

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