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 Massachusetts Charitable Lead Inter Vivos Unit rust (CLT) is a legal and philanthropic tool that allows individuals to provide financial support to both charitable organizations and their beneficiaries. It is designed to allow the donor to enjoy certain tax benefits while simultaneously providing a stream of income to charities for a specified period of time. A Charitable Lead Inter Vivos Unit rust operates by transferring assets, such as cash, securities, or real estate, into a trust. The trust is then administered by a trustee, who manages the assets and distributes a fixed percentage of the trust's value to one or more charitable organizations for a predetermined period. At the end of the specified time, the remaining assets of the trust are distributed to non-charitable beneficiaries, such as family members or heirs. This type of trust can be highly customizable to the wishes and goals of the donor. Different options and variations exist within the Massachusetts Charitable Lead Inter Vivos Unit rust structure, including: 1. Charitable Lead Annuity Trust (FLAT): This type of trust pays a fixed amount to the charitable organization(s) annually, regardless of the trust's value or investment performance. The remaining assets are distributed to non-charitable beneficiaries at the end of the trust term. 2. Charitable Lead Unit rust (CLUB): Unlike the FLAT, a CLUB pays a fixed percentage of the trust's value, which is revalued annually, to the charitable organization(s) each year. The remaining assets are subsequently distributed to the non-charitable beneficiaries. 3. Granter Charitable Lead Unit rust (GLUT): A GLUT is essentially a CLUB where the donor retains the right to income tax deductions, but also includes the tax-exempt status of the charitable lead payment. This allows the donor to effectively transfer more assets to beneficiaries while minimizing potential tax burdens. 4. Non-Grantor Charitable Lead Unit rust (Non-GCLUT): In this type of trust, the donor does not retain any income tax deductions nor does the trust enjoy tax-exempt status, making it less common. The Massachusetts Charitable Lead Inter Vivos Unit rust offers considerable advantages for both the donor and the charitable organizations involved. Donors can fulfill their philanthropic goals, reduce potential estate taxes, and provide a stable income stream to nominated charities. At the same time, charitable organizations benefit from receiving a reliable and substantial financial support during the specified trust period.
