Charitable Lead Trust

What Does Charitable Lead Trust Mean?

A charitable lead trust is a type of trust in which the trust’s income is given to a charitable institution, either public or private, for a specified number of years. After this period, the remaining income is returned to the trust owner or its beneficiaries.

Insuranceopedia Explains Charitable Lead Trust

There is a tax deduction benefit when a portion of the income from a trust is donated to charity. In earlier decades, if an estate donated to charity while the estate owner was still alive, tax deductions were applied twice: once for the amount donated to charity and again for the estate’s income. However, a law passed in 1969 ended these excessive tax deductions.

Today, if the grantor is considered the owner of a charitable trust, they are still responsible for paying taxes on that trust, while the charitable organization receiving the income is not taxed. However, if the ownership of the trust is transferred to another person or entity, the original owner will not incur taxes. Once the period of income designated for charity has concluded, the non-charitable beneficiary (typically a family member) of the trust will benefit from reduced taxes on the remaining income of the trust.