Tools For Giving: How A Charitable Lead Trust Works

Philanthropic Services Group

The Denver Foundation

As a community foundation, The Denver Foundation helps people create charitable legacies through planned gifts that honor their interests and achieve their philanthropic and financial goals. Charitable Lead Trusts (CLT) are one way that Denver Foundation fundholders can create charitable legacies and also derive tax benefits. A CLT enables a donor to make significant charitable gifts now while transferring substantial assets to beneficiaries later.

Dr. Joyce J. Neville’s decision to establish a CLT allowed her to leave two legacies. The trust established through her estate created donor-advised funds for seven family members. Every year for 10 years, the trust distributes an annuity payment to these funds for her heirs to use to support their favorite charities. At the end of the term, the trust terminates and Joyce’s heirs will receive the remaining trust assets.

“I could never have imagined what a gift this Fund would be to me and my family,” says Heather Nevill, a cousin to Joyce. Through the donor-advised fund established by Joyce’s estate, Heather has directed grants to a number of arts and justice organizations across the country. “The ability to support incredible causes and know we are making a difference is the greatest inheritance I could imagine,” she says.

Thanks to Joyce’s careful planning, in a few more years, Heather and her family will receive a direct financial inheritance as well.

How It Works

A CLT is created when a donor establishes and then funds a trust. The trust operates by making annual gifts to nonprofits or donor-advised funds for the duration of the trust term. The charitable gifts can be either a fixed or percentage amount and the donor can use the trust to help one or more qualified nonprofits.

When the trust term ends, either upon the death of the donor or after a specified number of years, the trust assets are transferred back to non-charitable beneficiaries such family members or the donor. A CLT can be an important aspect of a thoughtful estate and financial plan and can be created during a donor’s lifetime or through an estate plan.

The trust provides a number of financial benefits. It shelters investment earnings from tax. Depending on the type of trust, it can offer a gift, estate, and generation-skipping tax benefits. The estate tax deduction makes it possible to pass on significant assets from estates to family at a reduced or zero estate tax cost. A lead trust qualifies for a charitable gift or estate tax deduction based on the present value of the payments made to charity.

While Charitable Lead Trusts must be drafted by professional advisors, The Denver Foundation’s Philanthropic Services Group is happy to talk with you about how you might incorporate this type of trust into your charitable plan. Please call us anytime at 303.300.1790.

A portion of content © 2015 Crescendo Interactive, Inc. Used with permission.

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