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 District of Columbia Charitable Lead Inter Vivos Unit rust, also known as FLAT, is a type of trust that allows individuals to support charitable organizations while also providing potential financial benefits for themselves or their designated beneficiaries. This legal instrument offers a unique opportunity to make a positive impact on society while maximizing tax benefits. With a District of Columbia Charitable Lead Inter Vivos Unit rust, individuals can place assets or property into the trust, designating an annual payout amount to be given to chosen charitable organizations. The term "inter vivos" refers to the fact that this trust is created and becomes effective during the lifetime of the granter or trust creator. There are several types of Charitable Lead Inter Vivos Unit rusts available in the District of Columbia, each catering to different financial goals and individual circumstances. Some common variations include: 1. Charitable Lead Annuity Trust (FLAT): In a FLAT, the granter determines a fixed payout amount to be distributed to the charitable beneficiaries annually. This fixed amount can be based on a percentage of the initial value of the trust or a predetermined dollar figure. 2. Charitable Lead Unit rust (CLUB): Unlike a FLAT, a CLUB calculates the annual payout as a fixed percentage of the trust's fair market value, which is reevaluated each year. This means that if the trust's assets appreciate over time, the charitable payout also increases. 3. TIMEOUT: A Net Income with Makeup Charitable Remainder Unit rust (TIMEOUT) provides flexibility by allowing the granter to have the trust's annual payout be based on the least of a fixed percentage of the trust's fair market value or the trust's net income for that year. If the trust generates less income in a particular year, any shortfall can be made up in subsequent years whenever the trust's income exceeds the stated fixed percentage. 4. FLIRT: The Flip Charitable Remainder Unit rust (FLIRT) is a type of trust that starts as a Charitable Lead Unit rust but can "flip" to become a Charitable Remainder Unit rust (CUT) at a predetermined future event. This conversion allows the granter or their designated beneficiaries to receive income from the trust after the charitable beneficiaries have received their payments. It is important to consult with legal and financial professionals who are well-versed in trust planning and are knowledgeable about the specific regulations and requirements of the District of Columbia. They can help determine the most suitable type of District of Columbia Charitable Lead Inter Vivos Unit rust for your philanthropic goals, financial objectives, and personal circumstances.
