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.
Puerto Rico Charitable Lead Inter Vivos Unit rust (CLT) is a legal and financial tool designed for individuals or couples who wish to support charitable causes while also providing for their family or loved ones. This unique trust instrument allows donors to make significant contributions to charitable organizations in Puerto Rico during their lifetime, with the ultimate goal of benefiting the chosen charities and preserving wealth for heirs. A Puerto Rico Charitable Lead Inter Vivos Unit rust operates by transferring assets, such as cash, securities, or real estate, into the trust. This initial contribution is managed by a trustee who is responsible for administering the trust according to the donor's instructions. The trustee will generate income from the invested assets and distribute a specified percentage or amount to one or more eligible charities in Puerto Rico for a predetermined period. There are different types of Puerto Rico Charitable Lead Inter Vivos Unit rusts, including: 1. Charitable Lead Annuity Unit rust (FLAT): This type of trust pays a fixed annuity amount to one or more charities in Puerto Rico for a specific term. The annuity remains constant regardless of the trust's investment performance. 2. Charitable Lead Unit rust (CLUB): Unlike a FLAT, a CLUB distributes a fixed percentage of the trust's value, recalculated annually, to one or more charitable organizations in Puerto Rico. The amount distributed to charities may vary based on the trust's performance, and any remaining trust assets may ultimately revert to the donor or their designated beneficiaries. 3. Charitable Lead Net Income Unit rust (CLINT): This variation pays the net income earned by the trust's assets to charitable organizations in Puerto Rico. The beneficiaries (usually family members) receive any remaining income after the charity's distributions. 4. Charitable Lead Flip Unit rust (CLOUT): This type of trust starts distributing income to charitable causes in Puerto Rico initially but can later "flip" and become a traditional unit rust. Upon the occurrence of a specified event, such as the death of the donor or the attainment of a certain age by the beneficiaries, the trust's assets are then solely managed for the benefit of the beneficiaries. Puerto Rico Charitable Lead Inter Vivos Unit rusts offer several benefits, including potential income tax deductions for the donor, reduced estate and gift taxes, and the ability to support charitable organizations important to the donor. These trusts allow individuals to leave a lasting legacy while also providing for their loved ones. Every individual's financial situation and philanthropic goals are unique, so consulting with a knowledgeable attorney or financial advisor is crucial when considering establishing a Puerto Rico Charitable Lead Inter Vivos Unit rust.
