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.
The Washington Charitable Lead Inter Vivos Unit rust, often referred to as CLT, is a unique estate planning tool that allows individuals to donate assets to charities while still providing income for themselves or their beneficiaries during their lifetime. It combines the benefits of a charitable lead trust (CLT) with those of a unit rust. A Charitable Lead Inter Vivos Unit rust operates by transferring assets into a trust, which is then managed by a chosen trustee. The trustee is responsible for distributing a fixed percentage of the trust's value to one or more charitable organizations for a predetermined period, which can be measured by a specific number of years or the lifetime of an individual or individuals. This charitable donation made from the trust is known as the "lead interest." During the term of the trust, the income generated from the remaining assets of the trust after the distribution to charities is used to provide income to the granter or other non-charitable beneficiaries, known as the "remainder interest." These beneficiaries could include the granter's children or other family members. The income distribution can be based on either a fixed percentage or a fixed dollar amount determined by the value of the trust assets. One notable advantage of the Washington Charitable Lead Inter Vivos Unit rust is that it can help reduce the granter's tax liability, as charitable donations made through this trust are tax-deductible. By allocating a fixed percentage of the trust assets to charitable organizations, the granter can lower their taxable estate and potentially minimize estate taxes. There are several variations of the Washington Charitable Lead Inter Vivos Unit rust, including: 1. Charitable Lead Annuity Unit rust (CALT): This type of trust provides a fixed dollar amount to charitable organizations annually, regardless of the trust's investment performance. The remaining income is then distributed to the non-charitable beneficiaries. 2. Charitable Lead Flip Unit rust (CLEFT): With this trust, the lead interest is donated to charitable organizations during the early years of the trust. After a specified period or triggering event, such as the death of the granter, the trust converts into a standard unit rust, and the remaining income is directed to non-charitable beneficiaries. 3. Charitable Lead Net Income Unit rust (CLI): In this type of trust, the lead interest is based on the trust's actual income for a given year. The non-charitable beneficiaries receive the remaining income generated by the trust assets after the charitable donations have been made. 4. Charitable Lead Unit rust (CLUB): This trust type allocates a fixed percentage of the trust's value to charitable organizations annually. The non-charitable beneficiaries receive the remaining income, which may fluctuate based on the trust's investment performance. The Washington Charitable Lead Inter Vivos Unit rust serves as a valuable estate planning tool for individuals who wish to support charitable organizations while preserving income for themselves or their loved ones. By considering the different types of Cuts available and consulting with legal and financial experts, individuals can tailor their estate plans to align with their charitable goals and financial objectives.
