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.
California Charitable Lead Inter Vivos Unit rust, also known as CLT, is a specific type of irrevocable trust established in California that combines charitable giving with potential tax benefits and income distribution planning. This trust structure allows individuals to support charitable causes they care about during their lifetime while also ensuring financial security for their beneficiaries. The California Charitable Lead Inter Vivos Unit rust is primarily designed to provide financial support to a chosen charitable organization for a specific period, subsequently passing the remaining assets to non-charitable beneficiaries, commonly family members or loved ones. The trust is "inter vivos," meaning it is created during the lifetime of the granter (the person establishing the trust). There are two main types of California Charitable Lead Inter Vivos Unit rusts: 1. Charitable Lead Annuity Unit rust (FLAT): This type of trust pays a fixed annual amount or percentage of the initial trust value to the charitable organization for a set period. The remaining assets, after fulfilling the charitable obligations, are then distributed to the non-charitable beneficiaries. A FLAT provides certainty for both the charitable organization and the beneficiaries, as the annual payments remain constant throughout the trust term. 2. Charitable Lead Unit rust (CLUB): This type of unit rust pays a variable annual amount to the charitable organization, typically a percentage of the trust's fair market value determined annually. The payments adjust with the trust's value, potentially providing more significant contributions during prosperous investment periods and reduced amounts during downturns. Once the trust term ends, the remaining assets are distributed to the non-charitable beneficiaries. Creating a California Charitable Lead Inter Vivos Unit rust can offer several advantages. From a philanthropic perspective, the trust allows individuals to support charitable causes effectively and make a lasting impact on the community. Additionally, the trust can provide potential tax benefits, such as income, capital gains, and estate tax deductions. It is important to consult with an experienced attorney or financial advisor familiar with California state laws and regulations when considering the establishment of a California Charitable Lead Inter Vivos Unit rust. They can guide individuals through the process, help select the appropriate trust type, and ensure compliance with all legal requirements.
