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Charitable lead trusts: giving now, passing to heirs later

The mirror image of a charitable remainder trust — a charity gets the income stream first, your heirs get the remainder, and the structure can slash gift and estate tax on the transfer.

A charitable lead trust (CLT) flips the more familiar charitable remainder trust on its head. Instead of you (or your heirs) receiving income now and a charity getting what is left, a charity receives a stream of payments FIRST, for a set term, and your heirs receive whatever REMAINS at the end. It is a tool for the charitably inclined who also want to pass assets to family with reduced gift or estate tax.

How it works

1
Fund the trust
You transfer assets — often income-producing or appreciating ones — into an irrevocable charitable lead trust for a term of years.
2
Charity gets the 'lead' payments
The trust pays a chosen charity a fixed annuity (a CLAT) or a fixed percentage (a CLUT) each year for the term.
3
Value the gift to heirs
The remainder that heirs will eventually receive is valued today using the IRS hurdle rate — and the charity's lead interest sharply reduces that taxable gift.
4
Heirs receive the remainder
At the end of the term, whatever is left — including growth above the hurdle — passes to your heirs, often with little or no additional transfer tax.

Low hurdle rates supercharge a CLAT

Like a GRAT, a charitable lead annuity trust (CLAT) transfers to heirs whatever the assets earn ABOVE the IRS section 7520 hurdle. When that rate is low, the projected remainder to heirs looks small for gift-tax purposes but the actual assets can outgrow it — handing family the excess nearly tax-free while the charity is paid along the way.

Grantor vs. non-grantor CLTs

Type	Income tax deduction	Who is taxed on trust income
Grantor CLT	Large upfront deduction in year one	You, on the trust's income during the term
Non-grantor CLT	No personal deduction	The trust itself, which deducts its charitable payments

Two flavors of charitable lead trust

This is irrevocable and complex

A CLT locks assets away for the term, requires careful drafting, and involves tradeoffs between income-tax and transfer-tax benefits that depend on your goals. It fits people with genuine charitable intent AND a wealth-transfer objective — not those seeking a pure tax play. Build it with an estate attorney and CPA; nothing here is individualized advice.

When a CLT fits

You want to support a charity for a period of years AND ultimately benefit heirs.
You hold appreciating assets you expect to outgrow the IRS hurdle rate.
You are near or above the estate-tax exemption and want to move future growth to family at a discounted gift-tax cost.
A grantor CLT specifically appeals if you want a large charitable deduction in a single high-income year.

The bottom line

A charitable lead trust pays a charity first and your heirs last, using the charity's lead interest to shrink the taxable gift to family — and, when the assets outgrow the IRS hurdle, passing the excess to heirs with little transfer tax. Grantor versions add a big upfront income-tax deduction. It is a sophisticated blend of philanthropy and estate planning, best suited to those who genuinely want both, and firmly in professional-advisor territory.

Check your understanding

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In a charitable lead trust, who receives payments first, and who receives what remains?

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