A charitable lead trust is an irrevocable trust designed to provide financial support to one or more charities for a period of time, with the remaining assets eventually going to family members or other beneficiaries.
Charitable lead trusts are often considered to be the inverse of a charitable remainder trust. At the same time, the trust distributes regular payments to benefit a preferred charity or charities during the term of the trust.
How a charitable lead trust works:
At their most basic level, a charitable lead trust works in the following way: The grantor, or person establishing the charitable lead trust, makes a contribution to fund the trust which is set up to operate for a fixed term such as a set number of years or the life of one or more people. Tax planning and other goals of the individual establishing the trust should guide the choice between these categories, as each provides distinct advantages and possible drawbacks.
Grantor charitable lead trust:
In a grantor charitable lead trust, the grantor can take an immediate income tax charitable deduction for the present value of the future payments that will be made to the charitable beneficiary, subject to applicable deduction limitations depending on whether the beneficiary is a public charity or a private foundation. However, this benefit should be considered in conjunction with the fact that the trust’s investment income is taxable to the grantor during the trust’s term.
References:
Charitable, F. (2020). Charitable lead trusts. Retrieved August 17, 2020, from https://www.fidelitycharitable.org/guidance/philanthropy/charitable-lead-trusts.html