In a charitable lead trust, a donor transfers property to the lead trust, which pays a percentage of the value of the trust assets, usually for a term of years, to the charity. At the end of the trust term, the remaining assets in the trust and any growth it has realized are passed to donor's heirs. Although there is no income tax deduction when the donor creates a charitable lead trust, his/her gift or estate tax is greatly discounted and any growth is passed to his/her heirs gift and estate tax free.
In a charitable lead unitrust, a donor irrevocably transfers cash, closely held securities or other valuable property to a trustee who, during the unitrusts term, invests the unitrust's assets. Each year, the trustee distributes a fixed percentage of the unitrust's net asset value, as calculated annually, to a named charity. These payments are made out of trust income (or trust principal if the trust income is not adequate) and are tax deductible as a charitable contribution for the year in which they are made. If, however, trust income exceeds the charitable payment for a given year, the trust pays income tax on the excess.
When the lead unitrust term ends, the unitrust distributes the remainder of its accumulated assets to a non-charitable remainderman, usually family members or other beneficiaries named by the donor. That amount is subject to federal gift tax based on the current fair market value of the gift at the time the trust is established. Gift tax is paid on the remainder interest as calculated from the current fair market value of the asset at the time the trust is established; generally this amount is much less than the estate tax would be on the asset as calculated at the time it is inherited.
Michigan Charitable Lead Inter Vivos Unit rust (CLT) is a unique estate planning tool that allows individuals to provide financial support to charitable organizations while still retaining control over their assets during their lifetime. This type of trust combines the benefits of a charitable lead trust with those of an inter vivos trust, providing donors with flexibility and potential tax advantages. The Michigan CLT is specifically designed for individuals who prioritize charitable giving and wish to minimize their estate taxes. By establishing a Michigan CLT, donors can redirect income generated by their assets towards charitable organizations for a specified period of time, either a fixed term or based on the life of certain individuals. This charitable donation creates a valuable charitable income tax deduction for the donor. There are two main types of Michigan Charitable Lead Inter Vivos Unit rusts that can be established: 1. Charitable Lead Annuity Trust (FLAT): Under this type of trust, the donor designates a fixed annual amount to be paid to the charitable organization(s). The income generated from the trust's assets is distributed as an annual annuity payment to the designated charity(IES). Any remaining income, after fulfilling the charitable distribution, reverts to the donor or beneficiaries defined by the trust. 2. Charitable Lead Unit rust (CLUB): This type of trust distributes a fixed percentage of the trust's assets, revalued annually, to the charitable organization(s). As the value of the trust changes over time, the annual charitable distribution may increase or decrease accordingly. After the specified term, the remaining trust assets go to the donor or the beneficiaries designated in the trust. Michigan Charitable Lead Inter Vivos Unit rusts offer several key advantages. Firstly, they allow donors to support charitable causes they are passionate about while having the reassurance that their assets will ultimately return to them or their chosen beneficiaries. Secondly, these trusts can provide significant estate tax benefits by removing assets from the donor's estate. Lastly, they offer flexibility in choosing the charitable organization(s) that will benefit and the duration of the trust. It is important to consult with an experienced estate planning attorney or financial advisor knowledgeable about Michigan laws when considering establishing a Michigan Charitable Lead Inter Vivos Unit rust. They can help customize the trust to meet specific philanthropic goals and ensure compliance with all applicable regulations.
