Charitable Lead Trusts | CLT Planning | Intentional LLC

Charitable Lead Trust

Charity receives the income.
Your heirs receive
the remainder.

A Charitable Lead Trust is the inverse of a Charitable Remainder Trust. The charity goes first. Your family goes second. And what transfers to your heirs does so at a significantly reduced tax cost.

Start the conversation

The CLT is primarily an estate planning tool that also supports charity.

What a CLT actually does

Transfer wealth to heirs
at a fraction of the
normal tax cost.

Most people encounter the Charitable Lead Trust as an estate planning tool before they encounter it as a charitable one. That is not wrong. The CLT is primarily a mechanism for transferring assets to the next generation at a reduced gift or estate tax cost. The charitable component is real and meaningful, but it is also part of what makes the economics work.

Here is how it works. You fund the trust with assets. The trust pays an income stream to a charity or charities for a defined term, typically 10 to 20 years. At the end of that term, the remaining assets, which ideally have grown beyond the original contribution, pass to your heirs. Because the charity's income interest reduces the taxable value of the gift to your heirs, the transfer happens at a fraction of what it would otherwise cost in gift or estate taxes.

The CLT is most powerful in a low interest rate environment, when the IRS discount rate used to calculate the charitable deduction is favorable. It is also most appropriate for donors who genuinely want to support a cause over a meaningful time period, not simply as a tax mechanism.

"The CLT conversation is always an estate conversation first and a charitable conversation second. When both are genuine, it is one of the most elegant planning tools available."

James Roberts, Founder, Intentional LLC

Two structures

Grantor or non-grantor.
The choice changes
the economics.

Grantor CLT

Upfront deduction. Ongoing tax obligation.

The donor is treated as the owner of the trust for income tax purposes. This generates a large upfront charitable deduction equal to the present value of the income stream going to charity. However, the donor must also pay income tax on all trust income during the trust term. Best suited for donors with a very high-income year they want to offset with a substantial deduction.

Non-Grantor CLT

No upfront deduction. Gift and estate tax savings.

The trust pays its own taxes and the donor receives no upfront income tax deduction. The benefit is gift and estate tax savings on the remainder interest passing to heirs. The trust pays the charity's income stream from trust assets and any growth above the IRS discount rate passes to heirs free of additional gift tax. Best suited for donors focused on multigenerational wealth transfer with a charitable component.

Keep reading

Related topics worth
understanding.

Charitable Planning

The broader conversation about giving with intention

Charitable Remainder Trusts

The inverse structure: donor receives income, charity receives remainder

Donor Advised Funds

The most flexible charitable giving vehicle available

Common questions

What people ask about
Charitable Lead Trusts.

  • A Charitable Lead Trust, or CLT, is the inverse of a Charitable Remainder Trust. In a CLT, the charity receives the income stream for a period of time, and the remaining assets pass to the donor's heirs at the end of the trust term. The CLT is primarily an estate planning tool that allows donors to transfer assets to heirs at a reduced gift or estate tax cost while supporting a charitable cause during the trust term.
  • In a Charitable Remainder Trust, the donor receives income during the trust term and the charity receives what remains at the end. In a Charitable Lead Trust, the charity receives income during the trust term and the donor's heirs receive what remains at the end. A CRT is primarily an income and tax planning tool for the donor. A CLT is primarily an estate transfer tool that also supports charity.
  • A CLT makes the most sense for donors who want to transfer assets to the next generation at a reduced tax cost, have a genuine charitable interest they want to support during that transfer period, and are in a low interest rate environment where the IRS discount rate makes the CLT economics most favorable. CLTs are more complex than DAFs or CRTs and are typically used as part of a comprehensive estate plan rather than as a standalone charitable strategy.
  • In a grantor CLT, the donor is treated as the owner of the trust for income tax purposes. The donor receives an upfront charitable deduction for the present value of the income stream going to charity, but must also pay income tax on all trust income during the trust term. In a non-grantor CLT, the trust pays its own taxes and the donor receives no upfront income tax deduction, but does benefit from gift and estate tax savings on the remainder passing to heirs.

Start the conversation

Estate planning and charitable
giving can work
together.

A Charitable Lead Trust is one of the more complex charitable structures available. It works best as part of a broader conversation about estate planning and legacy. Schedule a conversation with James.

Schedule a conversation

30 minutes. No pitch. No pressure.