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Financial Answer Center


Trusts

Charitable Lead Trust

A charitable lead trust (CLT) is a trust to which you contribute appreciating income-producing property and the income is payable to a charity for a specified term of years (or for the life or lives of specified individuals). When the CLT term ends, the balance of the trust assets passes to your beneficiaries (typically members of your family). A CLT is used where you want to benefit charity while ultimately keeping property in the family. CLTs are generally created with at least $500,000 of assets.

A CLT can be structured as an annuity trust or as a uni-trust. Annuity trusts pay a fixed annual amount to the charity regardless of fluctuations in the value of the underlying assets. Under this arrangement, the non-charitable beneficiaries benefit if the assets included in the CLT appreciate in value. Uni-trusts, on the other hand, pay a fixed percentage of the trust's value, determined annually, to the charity. This means that the charity benefits if the trust's assets appreciate.

An example of a charitable lead trust

You transfer $1 million to a 15-year CLT that pays 8% to charity. The value of the charitable income interest is estimated to be about $808,370. Therefore, the amount subject to gift tax will be only $191,630. Once the trust period expires, the assets in the trust pass to your beneficiaries free of further tax. Assume that the assets grow to $2 million at the end of the trust term. You have effectively transferred $2 million to your heirs while paying tax on only $191,630.

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Securities and insurance products are offered through Osaic Institutions, INC., Member FINRA/SIPC. Osaic Institutions, INC. and FB Wealth Management, a division of First Bank, are not affiliated. We do not provide tax advice. Consult your tax advisor. NOT Bank Deposits NOT FDIC-Insured HAVE NO Bank Guarantee NOT Insured by any Federal Government Agency May Go Down in Value