CHARITABLE LEAD TRUST

If you have a large estate you are in a financial position to start making gifts during your lifetime to your named beneficiaries.  These gifts help your beneficiaries learn to manage and accumulate wealth.  At your death you plan to leave the balance of your estate to your named beneficiaries.  It may be wise not to give all of the inheritance to them at one time.  This of course is especially true if the beneficiaries are minors.  But even in cases where you have adult beneficiaries it is sometime wise to spread the distribution of your estate over a period of years.  To be a manager of your estate you not only need to consider the effects and management of large amounts of inherited wealth for your beneficiaries but also the tax consequences.  To be a manager you need to understand the benefits of combining charitable gifting with estate distribution.

One of the tools that you have available is a charitable lead trust (CLT).  The CLT can be set-up during your life or at death.  You the donor place a portion of your estate in an irrevocable trust that pays the income to your favorite charity(s) for your lifetime and/or a term of years.  At the end of the term it can be paid to you or your beneficiaries.  This provides three advantages to you, first you can set up an income stream to support the work of the charity, second you may better manage the distribution of your estate for you beneficiaries and third there are tax advantages to combining these strategies.

For example, a donor with a $5 million estate sets-up a CLT, to be established after his death, in the amount of $1,000,000, earning 9%.  The CLT will pay an 8% income to support his favorite ministry for a period of 15 years and then the remainder will go to his grandchildren.  He decided to leave the remainder to his grandchildren because of the substantial amount he left to his children at his death.  The children do received a charitable deduction on the estate of $701,389 that reduces their tax liability on their inheritance.  During the term of 15 years the charity receives $1,287,752 and when the CLT terminates at the end of 15 years the grandchildren receive $1,160,969.

If we layer multiple CLTs into a plan we can have amounts coming due at convenient times for the beneficiaries and calculate the different deductions to eliminate or reduce the estate taxes.  It is not unusual for four different CLTs to be set-up at terms of 5 years, 10 years, 15 years and 20 years.  In developing a plan you have to consider the ages and maturity of the beneficiaries and the amount of gift you want to give to the charity.  Proverbs 20:21 states that an inheritance received hastily will not be blessed. Spreading the distribution overtime will help the beneficiaries better manage their inheritance.

Many different strategies can be incorporated into an estate plan.  The goal is to maximize the amount going to the family and charity and to minimize or eliminate the amount paid for taxes

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