The holiday season has a way of prompting deeper conversations—about gratitude, generosity, and the legacy you want to leave for your family.
By incorporating a charitable lead trust (CLT) into your estate plan you can support the causes closest to your heart now while transferring wealth to your heirs later in a tax-efficient way.
This guide answers common questions about CLTs and how they can create lasting philanthropic impact.
Key Takeaways:
- A charitable lead trust is an irrevocable trust designed to support charities now while helping reduce the tax burden on your beneficiaries later.
- When structured correctly, CLTs may provide significant tax advantages, including potential income tax deductions and reduced estate or gift taxes.
- A CLT can help strengthen family bonds by engaging younger generations in shared, values-driven philanthropy.
What Is a Charitable Lead Trust?
A Charitable Lead Trust is an estate-planning tool that directs a stream of payments to one or more charities for a set number of years. Once that period ends, the remaining assets typically pass on to your beneficiaries—such as children or grandchildren.
Think of it as a gift that “leads” with charitable impact while helping to preserve long-term family wealth.
How Does a CLT Work?
- You contribute assets—cash, securities, or other property—to the irrevocable trust.
- The trust pays a fixed amount (annuity CLT) or a percentage of its value (unitrust CLT) to your designated charity each year.
- After the trust term ends, the remaining assets pass to your heirs, potentially with reduced transfer taxes.
What are the Tax Implications?
Charitable lead trusts can be structured as either non-grantor or grantor trusts, and each offers distinct tax benefits and trade-offs.
With a non-grantor charitable lead trust:
- The trust owns the assets and pays tax on any undistributed net income.
- The trust—not you—can claim an unlimited income tax charitable deduction.
- While you won’t receive an income tax deduction, this structure can help reduce or eliminate transfer taxes.
With a grantor charitable lead trust:
- You may take an immediate income tax deduction based on the present value of the trust’s future charitable gifts, lowering your current federal income tax burden.
- During the term of the trust, you are responsible for paying income tax on the trust’s investment earnings.
What Are the Benefits of Charitable Lead Trusts?
A charitable lead trust allows you to support the causes you value while also creating meaningful financial advantages for your family. Key benefits include:
- Make a meaningful difference today.
A CLT provides steady, predictable support for the causes your family cares about. Whether you’re focused on education, the arts, or your local community, this structure delivers annual funding that helps nonprofits plan with confidence. - Pass more to your heirs—tax efficiently.
Because charitable payments are made first, the value of the eventual gift to your heirs may be reduced—or even eliminated—for gift- or estate-tax purposes. For families with significant estate-tax exposure, especially those transferring appreciating assets, this can be a powerful planning tool. - Strengthen family connections through shared values.
A CLT creates opportunities to involve younger generations in philanthropy. From selecting charities to reviewing annual reports, the trust can turn giving into an enduring family tradition. - Avoid a time-consuming probate process.
Since CLTs are irrevocable, trust assets are not part of your taxable estate. If you pass away before the trust term ends, those assets will bypass probate—helping your family avoid unnecessary delays, costs, and public proceedings. - Control the timing of when heirs receive assets.
A CLT allows you to set when beneficiaries ultimately receive the remaining trust assets, giving you flexibility to align distributions with family needs, age, or financial literacy levels.
How Do I Choose a Trustee?
Given the complex duties and potential liabilities of acting as a trustee, consider working with an experienced corporate trustee, like National Advisors Trust Company, rather than placing the burden on a friend or family member.
Is a Charitable Lead Trust Right for My Family?
There’s no one-size-fits all answer to this question. However, A CLT may be a good fit if you:
- Plan to make sustained, multi-year charitable gifts
- Hold assets you expect to appreciate significantly
- Want to reduce the estate-tax burden on future generations
- Seek to limit gift taxes on future transfers to heirs
- Want to create an enduring family legacy of philanthropy
What Are the Next Steps?
A charitable lead trust allows you to amplify your generosity—creating tax savings that can benefit both the causes you’re passionate about and the ones you love.
Speak with your financial advisor today about whether a CLT might align with your family’s philanthropic goals and broader estate plan.
If you don’t have an advisor, connect with one in our growing national network of 6,000+ professionals who can help guide you through the process.
Want to build a relationship with National Advisors Trust? The LinkedIn page is right HERE.
Sources for Compliance
https://www.fidelitycharitable.org/guidance/philanthropy/charitable-lead-trusts.html
https://www.libertybellfinancialgroup.com/tax-efficient-disposition-of-assets-crt-clt
