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A charitable lead trust can be established and funded either during your lifetime or by will. Additionally, a charitable lead trust can be set up to provide payments each year to º¬Ðß²ÝÑо¿ÊÒ—either a fixed annual amount (charitable lead annuity trust or CLAT) or a specified percentage of the trust assets each year which may vary (charitable lead unitrust or CLUT).

Tax planning and other goals of the individual establishing the charitable lead trust should guide the choice between these categories, as each provides distinct advantages and possible drawbacks.

Never a better time than now. There has never been a better time to take advantage of the high gift and estate tax exemption levels to move assets out of one's estate by establishing a charitable lead trust than now. The gift and estate tax exemption will sunset on December 31, 2025. Act. Learn more about why this is so on our CLT Frequently Asked Questions.

Tax-advantaged Wealth Transfer

The fundamental advantage of a charitable lead trust is that when you make transfers to it, you pay gift taxes on the projected amount of the ultimate transfer to beneficiaries, not the actual amount. The projection is based on the assumption that the assets will grow over the term of the trust at the IRS discount rate in effect at the time the trust is established. Any growth that occurs above the IRS discount rate is an opportunity for tax-reduced or tax-free wealth transfer.  

If one of your goals is to take advantage of the current gift and estate tax exemption (sunsetting in 2025) to transfer assets to your children or grandchildren at a favorable tax cost, this is an opportune time to discuss a charitable lead trust with your financial advisor.

How it Works

1. Transfer cash, securities, or other income-producing property to a charitable lead trust.
2. Receive an available estate and/or gift tax deduction.
3. During its term, the trust pays a fixed or variable amount to º¬Ðß²ÝÑо¿ÊÒ annually.
4. At the end of the term, the trust's remainder passes to your beneficiaries (non-grantor trust) at reduced tax rates or is returned to you (grantor trust). 

The Benefits of a CLT versus a Private Foundation or DAF 

A CLT may be a preferable way to accomplish your philanthropy. Unlike funding a private foundation or a donor-advised fund (DAF) where your capital is irrevocably transferred, assets used to fund a CLT are only temporarily placed in a trust. At the end of the CLT term, appreciated capital returns to you (grantor CLT) or is transferred to your named beneficiaries (non-grantor CLT) with favorable tax treatment. 

Explore Funding a CLT

Contact the Office of Gift Planning at giftplanning@bowdoin.edu  or by calling 207-725-3172 to request a personal illustration and explore how you can take advantage of historically low discount rates and high gift and estate tax exemptions by establishing a charitable lead trust to accomplish your philanthropy and/or wealth transfer objectives.

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Please note that we are prohibited from giving legal or financial advice and none of the information above should be interpreted as such. We encourage you to consult with your own legal counsel or financial advisor before deciding whether or not to proceed with a gift.