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 Alaska Charitable Lead Inter Vivos Unit rust is a specific type of trust designed to benefit both charitable organizations and individual beneficiaries. It is commonly used for tax planning and estate planning purposes. This trust is established during the lifetime of the donor (inter vivos), allowing them to make charitable contributions while retaining some control over the trust assets. The Alaska Charitable Lead Inter Vivos Unit rust operates by distributing a fixed percentage of the trust property's fair market value to one or more charitable organizations for a specified period, usually a predetermined number of years. At the end of this period, the remaining trust assets are transferred to the designated non-charitable beneficiaries, often the donor's family members or other individuals. It is important to note that Alaska has specific laws and regulations governing charitable trusts, and the establishment and administration of a Charitable Lead Inter Vivos Unit rust should be done in compliance with these regulations. There are different types of Alaska Charitable Lead Inter Vivos Unit rusts, including: 1. Non-Grantor Charitable Lead Inter Vivos Unit rust: In this type of trust, the granter is not treated as the owner of the trust assets for income tax purposes. The trust is considered a separate entity, and the income generated by the trust is taxable at the trust level. This type of unit rust can offer certain tax advantages for donors. 2. Granter Charitable Lead Inter Vivos Unit rust: Unlike the non-grantor trust, the granter is viewed as the owner of the trust assets for income tax purposes. The donor can claim income tax deductions for the charitable contributions made during their lifetime. However, the trust income is taxable to the granter. 3. Charitable Lead Annuity Trust (FLAT): A FLAT is a specific type of charitable lead trust where a fixed annuity amount is paid to the charitable beneficiaries instead of a percentage of the trust's fair market value. This annuity payment occurs annually or at regular intervals for a specified period. The remaining trust assets are then distributed to the non-charitable beneficiaries at the end of the trust term. 4. Charitable Lead Unit rust (CLUB): A CLUB is another variant of the Charitable Lead Inter Vivos Unit rust. The difference lies in the distribution amount to the charitable beneficiaries, which is a fixed percentage instead of a fixed annuity. The charitable beneficiaries receive a fluctuating income amount based on the trust's performance, and the remaining assets are transferred to the non-charitable beneficiaries at the end of the trust term. When considering the establishment of an Alaska Charitable Lead Inter Vivos Unit rust, it is crucial to consult with experienced professionals in trust and estate planning to ensure compliance with the relevant laws and to determine the most suitable type of trust based on individual goals and circumstances.
