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.
A Pennsylvania Charitable Lead Inter Vivos Unit rust, also known as a CLT, is a legal instrument used for charitable planning purposes. It combines elements of both a charitable lead trust and a charitable remainder trust, making it a versatile estate planning tool. It allows individuals to support charitable causes and maintain some control over the distribution of their assets. The Pennsylvania Charitable Lead Inter Vivos Unit rust operates by making annual payments to a charitable organization for a specified period of time. At the end of the term, the remaining trust assets are distributed to one or more non-charitable beneficiaries, typically the donor's heirs or loved ones. This arrangement allows the donor to support charitable causes during their lifetime while still providing for their family after their passing. There are different types of Pennsylvania Charitable Lead Inter Vivos Unit rusts, each offering unique benefits and characteristics. These include: 1. Charitable Lead Annuity Unit rust (CLU): In this type of trust, the annual payment to the charitable organization is a fixed dollar amount or a fixed percentage of the initial trust value, whichever is less. The remaining trust assets are then distributed to the non-charitable beneficiaries at the end of the trust term. 2. Charitable Lead Percentage Unit rust (CPU): Unlike the CLU, the CPU distributes a fixed percentage of the trust's annual value to the charitable organization. This means the annual payment may vary, depending on the performance of the trust assets. At the end of the trust term, the non-charitable beneficiaries receive the remaining trust assets. 3. Charitable Lead Net Income Unit rust (CLI): This type of trust makes annual payments to the charitable organization based on the trust's net income. If the trust's net income exceeds the specified percentage, the excess can be accumulated or distributed to the non-charitable beneficiaries. At the end of the term, the non-charitable beneficiaries receive the trust assets, including any accumulated income not distributed during the term. Pennsylvania Charitable Lead Inter Vivos Unit rusts offer various advantages, such as potential estate and gift tax savings, the ability to support charitable causes during one's lifetime, and the retention of control over the distribution of assets to non-charitable beneficiaries. However, it is essential to consult with a qualified attorney or financial advisor to tailor the trust to specific needs and ensure compliance with Pennsylvania state laws and regulations.
