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.
North Carolina Charitable Lead Inter Vivos Unit rust (CLT) is a legal and financial tool utilized for charitable giving in the state of North Carolina. It combines elements of a charitable lead trust and a unit rust, allowing individuals to provide ongoing support to charitable organizations while enabling them to retain income benefits. A Charitable Lead Inter Vivos Unit rust in North Carolina operates by transferring assets to a trust, which is managed by a trustee of the donor's choice. During the trust's term, which is pre-determined, the trustee distributes a fixed percentage of the trust's value to a qualified charity or charities. These payments are known as the lead interest and can be either a fixed dollar amount or a percentage of the trust's initial value. The interest payments are made to the charitable organizations for the specified term, after which the remaining assets are then transferred back to the donor or the donor's designated beneficiaries, typically family members. The income beneficiaries, such as the donor or their family, receive the remaining assets with possible tax benefits due to the charitable giving. The tax benefits can include income tax deductions and/or reduced estate taxes. There are various types of North Carolina Charitable Lead Inter Vivos Unit rusts available, including: 1. Charitable Lead Annuity Unit rust (CLAUS): This type of trust pays a fixed annuity amount to the charitable organization(s) throughout the trust's term. The annuity amount is determined at the time of creation and remains fixed, regardless of how the trust's value fluctuates. 2. Charitable Lead Unit rust (CLUB): Unlike the CLAUS, the payments made to the charitable organization(s) in a CLUB are based on a fixed percentage of the trust's value, which is recalculated annually. This means that if the trust's value increases, the payments to the charitable organization(s) also increase, providing the opportunity to give a larger amount over time. 3. Flip FLAT (Charitable Lead Annuity Trust): In this type of trust, the trust structure can flip from a lead annuity trust to a charitable remainder trust. It allows the beneficiary to receive income payments for a specified term, and then the remaining assets can be distributed to the donor's designated beneficiaries. 4. TIMEOUT (Net Income With Makeup Charitable Remainder Trust): While not a Charitable Lead Inter Vivos Unit rust, a TIMEOUT is another type of trust used for charitable giving. It provides the income beneficiary with variable payments based on the trust's net income. If the trust's income is lower than the specified amount, the payments are reduced or skipped. However, any skipped payments can be made up during future years when the trust's income exceeds the specified amount. North Carolina Charitable Lead Inter Vivos Unit rusts offer individuals an avenue to support charitable causes of their choosing while also enjoying potential tax benefits and the ability to pass on assets to loved ones. It is crucial to consult with an experienced attorney or financial advisor to determine the best approach and create a personalized plan that aligns with specific financial goals and charitable aspirations.
