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Friday, April 15, 2022

Charitable Lead Trusts

Do you have a charitable cause you hold close to your heart? Are you looking for ways to make a charitable impact most effectively in your estate plan? If so, you may want to learn more about a charitable lead trust, what it can do, and the benefits it can bring to you, your loved ones, and your favorite charities.

Charitable Lead Trusts

A charitable lead trust is an irrevocable trust which makes charitable contributions for a certain period of time. Afterwards, the assets remaining in the trust are eventually transferred to the named beneficiaries of the trust, who are usually family and other loved ones. This is not to be confused with the charitable remainder trust, which serves similar purposes, albeit inversely. You see, with a charitable remainder trust, the trust pays out a stream of income to family members, or other named parties, for a set period of time and then transfers the remainder of the trust assets to a charitable organization.

A charitable lead trust is established by the grantor, the founder of the trust, by transferring funds into the trust. The trust is designated to operate for a fixed period of time. The fixed period of time is often a set number of years or based on the lifespan of one or more people. During that fixed period of time, trust disbursements are made to the named charity or charities. These payments are commonly a percentage of the trust assets or fixed annuity payments. Payment amounts and timing will vary depending on the way the trust has been structured.

When the set period of time for charitable payments from the trust ends, the remainder of the trust is distributed to the named trust beneficiaries according to the terms set forth in the governing trust document. The structure and schedule of a charitable lead trust reduces the tax liability of the trust beneficiaries. Upon receiving the balance of the trust, the beneficiaries can reap further potential tax benefits, including income tax deductions for charitable donations. Beneficiaries can also potentially save on estate and gift tax liability.

As you can see, there are a number of benefits to establishing a charitable lead trust. For starters, it provides an efficient and effective way at providing a steady stream of income for your favorite charitable causes. It also is a way to transfer assets to your family members and loved ones. In addition to simply being a mechanism for the transfer of assets to your loved ones, a charitable lead trust also allows your beneficiaries to take advantage of a number of tax advantages that can significantly impact their tax liability in receiving the trust funds. Rules regarding charitable lead trusts, however, can be very complicated. Properly structuring the trust and accounting for trust funds received will be critical to complying with the specific rules set forth by the IRS pertaining to charitable trusts.

Estate Planning Attorney

Are you interested in making a charitable lead trust part of your estate plan? The trusted estate planning team at Monk Law is here to help. Contact Monk Law today.


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