Charitable Lead Trust (CLT)

A Charitable Lead Trust (CLT) allows individuals to support charitable organizations while also potentially reducing their estate and gift taxes. A CLT is an irrevocable trust in which the donor transfers assets to the trust, and the trust provides payments, or “lead interest,” to one or more designated charities for a specified period or the lifetime of an individual. After the charitable term ends, the remaining trust assets, known as the “remainder interest,” are distributed back to the donor, or to the donor’s heirs or other beneficiaries.

There are two primary types of CLTs: 

• Charitable Lead Annuity Trust (CLAT), in which the charity receives fixed annual payments
• Charitable Lead Unitrust (CLUT), in which payments are a fixed percentage of the trust’s annually revalued assets

A CLT is particularly appealing to individuals who are philanthropically inclined and wish to transfer wealth to their heirs at a reduced tax cost. It offers a way to support charitable causes while preserving family wealth, making it a powerful tool for those with significant assets. However, CLTs require careful planning and administration to ensure compliance with tax regulations and to align with the donor’s financial and charitable goals.