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.
Virginia Charitable Lead Inter Vivos Unit rust, also known as CLT, is a legal and financial tool that allows individuals to contribute assets to a trust while benefiting both charitable organizations and their chosen beneficiaries. This type of trust is governed by Virginia's specific laws and regulations and offers various options and types to suit different needs. One common type of Virginia Charitable Lead Inter Vivos Unit rust is the Non-Grantor CLT. In this arrangement, the trust creator, also known as the settler, transfers assets into the trust, which then pays a fixed yearly amount (known as the lead interest) to one or multiple charitable beneficiaries. At the end of a specified term or upon certain triggering events, the remaining assets are distributed to non-charitable beneficiaries, such as family members or individuals. Another type is the Granter CLT, which involves the settler retaining certain rights and control over the trust. In this case, the lead interest paid to charitable beneficiaries is either a fixed amount or a fixed percentage of the trust's net fair market value, determined annually. At the conclusion of the term, the remaining trust assets can either revert to the settler or be distributed among non-charitable beneficiaries. Virginia Charitable Lead Inter Vivos Unit rusts provide several advantages. Firstly, they enable individuals to support charitable causes they care about while also benefiting their family or other non-charitable beneficiaries. The trust creator has the flexibility to choose the length of the lead interest period and the charitable beneficiaries. Additionally, Cuts can provide potential tax benefits, such as income tax deductions and estate tax reductions. It is important to work with experienced professionals, such as attorneys and financial advisors, to establish and manage a Virginia Charitable Lead Inter Vivos Unit rust. These experts can ensure compliance with Virginia state laws, guide settlers in selecting charitable beneficiaries, and assist with maximizing tax advantages.
