What is a Charitable Lead Trust (CLT)?

A CLT is a type of split interest trust where a charity has the initial interest in CLT property while the remaining property is either directly distributed to, or retained in a trust for, the non-charitable beneficiaries. A CLT uses interest rates and the charitable term to reduce the value of the taxable gift given to the non-charitable beneficiary. CLTs can be funded with cash and/or other assets including publicly traded stock, real estate, private business interests, and private company stock. There are two types of CLTs: Grantor CLTs and Non-Grantor CLTs. In a Grantor CLT, the donor remains the owner of the funds and takes an immediate tax deduction for all future payments to the charity. In the case of a Non-Grantor CLT, the trust own the funds instead of the donor and the donor is ineligible for an immediate tax deduction. Such a trust is required to pay tax on investment income but may take a tax deduction for the distribution of funds given to the charitable beneficiary. 

CLT’s are frequently used for estate or gift planning purposes. They have the potential to provide income tax deductions or estate and gift tax savings on assets passed down to the remainder beneficiaries.