Charitable Lead Unitrust

Charitable Lead Unitrust - Grantor

A grantor charitable lead unitrust is a gift plan defined by federal tax law that allows an individual to retain ultimate possession of an asset while making a generous gift to charity. The donor transfers assets, usually cash or securities, to a trustee of choice, such as a bank trust department. The donor receives an income tax deduction equal to the value of the income stream promised to the charity. Because the gift is deemed to be “for the use of” the charity, the deduction is subject to IRS 20%/30% limitations..

Charitable Lead Trust – Super Grantor

A super grantor charitable lead trust is a charitable lead trust that has both grantor trust and non-grantor trust characteristics. Sometimes called a “defective” lead trust, the trust distributes its remaining principal to the donor’s heirs when it terminates. However, the donor retains just enough rights in the trust for the trust to be considered a grantor trust for income tax purposes and a non-grantor trust for gift and estate tax purposes. As a result, the donor pays tax on the trust’s taxable income, but the trust’s assets are out of the donor’s estate. The donor receives both an income tax deduction and a gift tax deduction in the year the trust is created. Because the gift is deemed to be “for the use of” the charity, the income tax deduction is subject to IRS 20%/30% limitations.

Conditions are Ripe for the Step Lead Trust

A charitable lead annuity trust is a way for a wealthy donor to pass assets on to heirs at little or no gift or estate tax cost while providing a generous gift to one or more charities at the same time. During its term, the lead trust makes payments each year to the charity(ies). Whatever assets remain in the lead trust when it terminates are distributed to individuals named by the donor, typically family members. Unlike a charitable remainder trust, which is tax-exempt, a charitable lead trust is a taxable entity, so trust investments need to be managed with this in mind.