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.
South Dakota Charitable Lead Inter Vivos Unit rust is a type of charitable trust that allows donors to support both charitable organizations and designated beneficiaries. Let's dive into a detailed description of this trust and its variations. A Charitable Lead Inter Vivos Unit rust (CLT) is a philanthropic tool used by donors who wish to give back to charitable causes during their lifetime while still passing assets to their chosen beneficiaries. This trust is established during the donor's lifetime, making it inter vivos, and it provides annual payments to charitable organizations for either a fixed term or the donor's lifetime, or both. The primary goal of the South Dakota Charitable Lead Inter Vivos Unit rust is to provide financial support to charities that align with the donor's philanthropic interests. The trust assets are generally invested, and the trust itself generates income or appreciation over time. A specified percentage of the trust's value is paid out annually to one or more charitable organizations as predetermined by the donor. In South Dakota, there are different types of Charitable Lead Inter Vivos Unit rusts that individuals can establish: 1. Charitable Lead Annuity Trust (FLAT): This type of trust pays a fixed annual amount to charities for a predetermined term or the donor's lifetime, regardless of the trust's investment performance. Class offer reliability in charitable distributions, but the ultimate distribution to the non-charitable beneficiaries may fluctuate based on the trust's performance. 2. Charitable Lead Unit rust (CLUB): Unlike Class, Clubs distribute a fixed percentage of the trust's value (revalued annually) to charitable organizations for a specific period or the donor's lifetime. The annual payouts vary with changes in the trust's value, ensuring a potential increase in distributions if the trust assets grow over time. 3. Flip Unit rust: A Flip Unit rust begins as a Charitable Remainder Unit rust (CUT) during the donor's lifetime, paying income to the donor or beneficiaries, and then "flips" into a Charitable Lead Unit rust (CLUB) after the donor's death. This arrangement allows donors to provide income to their beneficiaries during their lifetime and support charities thereafter. 4. Net Income with Makeup Charitable Lead Unit rust (TIMEOUT): Timeouts distribute the least of the trust's net income or a fixed percentage to charities over a defined term. However, if the trust income falls below the fixed percentage, the deficit is carried over and made up in favorable income years. Establishing a South Dakota Charitable Lead Inter Vivos Unit rust provides a unique opportunity to make a long-lasting impact on charitable organizations while still benefiting designated beneficiaries. This philanthropic tool allows donors to customize their giving strategy, maximize tax advantages, and ensure their legacy extends far beyond their lifetime.
