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.
Montana Charitable Lead Inter Vivos Unit rust (CLUB) is a legal tool that combines elements of a charitable lead trust (CLT) and a charitable remainder trust (CRT). It allows individuals to make significant charitable donations while still providing for themselves and their loved ones during their lifetime. A Montana CLUB operates by transferring assets, such as property or investments, into a trust. The trust then pays a specified amount or percentage of its fair market value each year to one or more charitable organizations for a predetermined period. There are different types of Montana Charitable Lead Inter Vivos Unit rusts that can be established based on the donor's specific goals and circumstances: 1. Charitable Lead Annuity Unit rust (FLAT): In this type of CLUB, a fixed dollar amount is distributed annually to charities. The remaining trust assets, if any, are returned to the donor or beneficiaries after the predetermined period. 2. Charitable Lead Unit rust (CLUB): A CLUB pays a fixed percentage of the trust's fair market value to charitable beneficiaries each year. The value of the annual distributions fluctuates as the trust's value changes. At the end of the specified period, any remaining assets are distributed to the donor or beneficiaries. 3. Flip Lead Unit rust: This type of Montana CLUB begins as a charitable lead trust and subsequently "flips" into a charitable remainder trust (CRT) upon the occurrence of a specific event, such as the sale of a property. This allows the donor or beneficiaries to receive income from the trust after the flip. 4. Non-Grantor Lead Trust: Unlike most Clubs, a non-grantor lead trust is designed to generate a current income tax charitable deduction for the donor during the year the trust is established. It can be structured to avoid recognition of capital gains on the sale of appreciated assets within the trust. Montana Charitable Lead Inter Vivos Unit rusts provide an effective mechanism for individuals to support charitable causes while achieving personal financial objectives. By leveraging the different types of Clubs available, donors can customize their philanthropic strategies to fit their unique circumstances. It is advisable to consult with an experienced attorney or financial advisor to explore these options further and determine the best approach for maximizing both charitable and financial goals.
