Legacy Building Articles
Charitable Lead Trusts
The charitable lead trust (CLT) is a powerful planning tool that can enable you to pass wealth to family members, reduce or eliminate gift and estate taxes, and establish a significant charitable gift to impact the work of God’s Kingdom.
How Does the Charitable Lead Trust Work?
The CLT is an irrevocable trust that pays income to qualified charities for a temporary period of time. At the end of the period, a permanent gift of the remainder interest and any appreciation pass to someone
other than the grantor—usually children and/or grandchildren. The trust generates a significant charitable deduction for gift or estate taxes (deductions totaling from 50 to 100 percent of the amount gifted are not uncommon) and may save on income taxes.
Case Study
Phil and Ann Thropist have four teenage grandchildren. They feel that the grandkids are not old nor mature enough to handle an immediate lump sum, and their estate is large enough that any bequests would potentially be subject to a 45-percent federal gift or estate tax. Over the years, they have supported ministries like Wycliffe and would like to continue that generosity.
A Wycliffe gift planning advisor recommends they consider a CLT to defer the inheritance for their grandchildren, and Phil and Ann decide a fifteen-year term will allow enough time for the grandchildren to mature. They decide to fund the trust with $2 million. During the term of the trust, it will distribute annual 5.5 percent payments to their chosen ministries to further the work of God’s kingdom—a total of $1.6 million. From a tax perspective, they will be entitled to a gift or estate tax deduction equaling 66 percent of the trust’s value or $1.3 million. At the end of the fifteen-year term, the grandchildren will receive the trust’s principal, free of gift or estate taxes.
