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.
Mississippi Charitable Lead Inter Vivos Unit rust (CLT) is a legal and financial tool that allows individuals to make a generous charitable gift while also retaining a stream of income for themselves or their loved ones. This type of trust provides flexibility, tax benefits, and the opportunity to support charitable causes in Mississippi. A Charitable Lead Inter Vivos Unit rust, also known as a CLT, is a trust established during the lifetime of the donor (inter vivos) and involves both a charitable and non-charitable beneficiary. The donor contributes assets, such as cash, stocks, real estate, or other valuable investments, into the trust. The trust is then divided into two parts: the charitable lead interest and the non-charitable remainder interest. The charitable lead interest is designated to benefit one or more charitable organizations of the donor's choice for a specific timeframe, typically a predetermined number of years. During this period, the trust makes annual payments or distributions to the charity/IES. These payments are either a fixed amount (charitable lead annuity trust) or a fixed percentage of the trust's net fair market value, revalued annually (charitable lead unit rust). The non-charitable remainder interest is what remains in the trust after the charitable payments have been made. It is either returned to the donor or transferred to one or more non-charitable beneficiaries, such as family members, heirs, or other designated individuals. The donor can choose the timing and manner of distribution, ensuring the financial support of loved ones while also supporting charitable causes. By establishing a Mississippi Charitable Lead Inter Vivos Unit rust, individuals can benefit from several advantages. Firstly, by donating to charitable organizations, donors can support causes they care about and make a positive impact in their community. Secondly, the trust can provide an immediate income tax deduction based on the present value of the charitable lead interest. Additionally, any appreciation or income generated by the trust assets can be passed on to the non-charitable beneficiaries, potentially reducing gift and estate taxes. In Mississippi, various types of Charitable Lead Inter Vivos Unit rusts exist, including but not limited to: 1. Charitable Lead Annuity Trust (FLAT): This type of CLT pays a fixed annuity amount to the charitable beneficiaries each year, regardless of the trust's net fair market value. 2. Charitable Lead Unit rust (CLUB): In contrast to a FLAT, a CLUB pays a fixed percentage (typically 5%) of the trust's net fair market value revalued annually to the charitable beneficiaries. 3. Charitable Lead Net Income Unit rust (CLINT): A CLINT distributes the least of the trust's net income or a fixed percentage (such as 5%) of the trust's net fair market value to the charitable beneficiaries. 4. Charitable Lead Net Income Unit rust with Makeup Provision (CLAIM): This type of CLT allows for makeup distributions to the charitable beneficiaries if the trust's net income in any given year is less than the payout amount. By utilizing these different types of Charitable Lead Inter Vivos Unit rusts, individuals can tailor their charitable giving strategies to suit their personal financial goals and charitable objectives while enjoying tax advantages and supporting charitable causes in Mississippi.
