Charitable lead trust

charitable lead trust

A trust that pays an income to a charity for a specific length of time then leaves the remainder of the trust to designated beneficiaries, usually family members. The purpose of the charitable lead trust is to reduce taxes on the estate of the deceased while maintaining the family's control of the estate's assets. Compare charitable remainder trust.

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Charitable lead trust. A charitable lead trust (CLT) is an irrevocable trust that allows you to provide current income generated by assets in the trust to a qualifying charity. When the trust terminates after the period specified in the trust agreement, the trust beneficiaries you've named receive the assets.

Because of the delay in the transfer of assets to your beneficiaries, your gift is valued for tax purposes at its discounted present value, based on IRS tables. That amount may be less than the gift's market value, which affects the size of the charitable deduction you can claim.

Transferring assets in a CLT not only reduces the value of your estate for estate tax purposes but also eliminates potential capital gains tax on any increased value of the assets.