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.
The Virgin Islands Charitable Lead Inter Vivos Unit rust (CLT) is a legal and financial tool that allows individuals to support charitable causes while also providing for their family or loved ones. It falls under the broader category of charitable trusts. A CLT is established when a person, referred to as the granter or settler, transfers assets into a trust. The trust is then managed and administered by a trustee, who oversees the distribution of income to one or more charitable beneficiaries for a specified period. At the end of this period, the remaining assets within the trust are transferred back to the granter or other non-charitable beneficiaries, often family members. The Virgin Islands offers its own regulations and rules for the establishment and management of Charitable Lead Inter Vivos Unit rusts. This legal structure provides several benefits, including tax advantages and flexibility in terms of the selection of charitable beneficiaries. There are various types of the Virgin Islands Charitable Lead Inter Vivos Unit rusts, including: 1. Non-Grantor CLT: This type of CLT allows the granter to receive a charitable deduction when funding the trust. However, the trust itself is treated as a separate entity for tax purposes. 2. Granter CLT: In contrast to a non-grantor CLT, a granter CLT does not provide a charitable deduction for the granter. However, it offers potential income and estate tax benefits in exchange for retaining some control over the trust's assets. 3. Charitable Remainder Trust (CRT): Though not technically a CLT, a CRT is worth mentioning as it follows a similar structure. Instead of providing income to charitable beneficiaries at the outset, a CRT distributes income to non-charitable beneficiaries first, with the remainder going to charity. 4. Pooled Income Fund: Another related concept is a pooled income fund, wherein multiple donors contribute assets to a collective fund managed by a charitable organization. The income generated from these assets is then distributed to individual contributors or beneficiaries. 5. Testamentary CLT: This type of CLT is established through a provision in a person's will or testament. Upon the person's death, the CLT is created, and its terms are enacted. In summary, the Virgin Islands Charitable Lead Inter Vivos Unit rust is a legal mechanism that enables individuals to support charitable causes while maintaining financial benefits for themselves or their loved ones. The various types of Cuts offered in the Virgin Islands allow individuals to tailor their charitable giving and estate planning strategies according to their specific needs and objectives.
