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.
Texas Charitable Lead Inter Vivos Unit rust (CLT) is a type of trust that allows individuals to support charitable causes while still retaining some control over their assets during their lifetime. This trust structure provides tax advantages and flexibility, making it an attractive option for philanthropically inclined individuals in Texas. A Texas CLT is an irrevocable trust that distributes a fixed percentage (unit rust amount) of the trust's net assets to one or more charitable organizations for a specified term. The charitable beneficiaries receive these distributions annually, while the non-charitable beneficiaries (such as the trust creators and their family) receive the remaining income or assets after the term's expiration. The unit rust amount can be a fixed percentage of the trust's net assets or a fixed dollar amount. This charitable lead trust offers several benefits, primarily in the form of tax savings. The individual creating the trust may receive an income tax deduction for the present value of the charitable payments made during the term. Additionally, the trust assets may be removed from the individual's taxable estate, potentially reducing estate tax liability upon death. There are different types of Texas Charitable Lead Inter Vivos Unit rusts, including: 1. Charitable Lead Annuity Trust (FLAT): With this type of trust, a fixed dollar amount (annuity) is distributed to charitable beneficiaries annually for a predetermined period. The non-charitable beneficiaries receive any remaining assets after the term ends. 2. Charitable Lead Unit rust (CLUB): Unlike the FLAT, a CLUB distributes a fixed percentage (unit rust amount) of the trust's net assets to charitable beneficiaries annually. The non-charitable beneficiaries receive the remaining assets after the term ends, which can fluctuate depending on the trust's performance. It is important to consult with a qualified estate planning attorney or financial advisor to determine the best type of Texas Charitable Lead Inter Vivos Unit rust for one's specific financial and philanthropic goals. Planning the terms and administration of the trust carefully ensures that both the charitable and non-charitable beneficiaries' interests are adequately addressed.
