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Domestic Non Grantor Trust | Ultra Trust | Sale Agreement | Engineered Capital Gains Transactions | SAM/SAL | Charitable Remainder Trust | Charitable Lead Trust


A Charitable Lead Trust is the mirror image of a Charitable Remainder Trust. In a Charitable Lead Trust the income from the asset value goes to the charity with the asset reverting back to the donor or donors' beneficiary(ies) after the income period of distribution. A Charitable Lead Trust should only be used by a grantor who possesses other income producing asset sufficient to provide for their cash needs. Charitable Lead Trusts are divided into three broad categories:

  1. Qualifying Non Grantor Charitable Lead Trust
  2. Grantor Charitable Lead Trust
  3. Non-Qualifying Non Grantor Charitable Lead Trust.

Tax Benefits

An income, gift or estate tax charitable deduction for the Charitable Lead interest is only available where the interest is either in the form of a guaranteed annuity interest or UniTrust interest payable at least annually.

  1. Inter vivos qualifying Non Grantor Charitable Lead Trust - The settlor is not entitled to an income tax charitable deduction with respect to any portion of the transfer to the trust. The primary tax benefits offered by such a trust are a gift tax charitable deduction for the value of the Charitable Lead interest, thus potentially removing an appreciated asset from the estate of the grantor.
  2. In a testamentary qualifying Non Grantor Charitable Lead Trust the settlor is entitled to an estate tax charitable deduction for the value of the Charitable Lead payments in trust but the property is included in the settlor's estate. However the settlor's heirs get stepped up basis in the property contributed to the trust with the asset eventually passing to the non charitable beneficiaries.
  3. The settlor of a Grantor Charitable Lead Trust obtains an immediate income tax charitable deduction upon funding the trust. The deduction is equal to the value of the amount being passed to charity, but the grantor remains taxable on the income subsequently earned by the trust. A Grantor Charitable Trust must be established as an inter vivos trust. In addition, in most instances, the corpus of the trust (remainder) will be included in the grantor's estate for estate tax purposes.
  4. A Non-Qualifying Non Grantor Charitable Lead Trust is an inter vivos trust that does not provide a guaranteed annuity or UniTrust interest and therefore does not qualify for an initial gift tax charitable deduction by the donors. Such a trust however, will qualify for an annual income tax charitable deduction while avoiding alternative minimum tax and private foundation restrictions.
  5. Premature termination of a Charitable Lead Trust has very unfavorable tax ramifications on the grantor.


  1. The income of a Charitable Lead Trust must go to a charity each year with the remainder going to the donor or their designee at the end of the term of the distribution.
  2. The grantor may not take any income from the trust until the trust terminates and the asset reverts to the grantor or their beneficiary(ies).
  3. A Charitable Lead Trust may serve as an additional marital deduction trust or as a substitute for a marital deduction trust ultimately benefitting children or other lineal heirs.
  4. A guaranteed annuity Charitable Lead Trust grants the charity beneficiary an irrevocable contractual right to receive a sum certain payable not less than annually for a term of years or for the life or lives of the donor(s), each of whom must be living at the creation of the trust. If the trust has insufficient income in any given year to pay the annuity then the corpus of the trust must be invaded to make up any short fall.
  5. Payments on a Charitable Lead Trust must occur at least annually but can occur as often as stated in the trust document.


  1. The governing instrument (trust document) of a Charitable Lead Trust must satisfy all the IRS requirements relative to a Charitable Lead Trust. If even one technical rule is not satisfied the trust can fail as a Charitable Lead Trust and the income, estate and or gift tax deduction will be lost by the donor.
  2. With a Charitable Lead Trust only a charity may be paid with the annuity amount.
  3. Additional contributions may be made to a Charitable Lead Trust however, those contributions are not tax deductible.
  4. Once a gift is made to a Charitable Lead Trust the charity has complete discretion in how the charity uses the annual payment.
  5. Trust income that is greater than that which is needed to make the annual payments called for in the trust may be retained by the trust or can be paid to the charity depending on the trust language.
  6. Only the following individuals may be the remaindermen (end beneficiary) of a Charitable Lead Trust.
    1. The original donor(s)
    2. The donor's spouse
    3. A lineal ancestor of the donor
    4. An individual who is either a lineal ancestor of the donor, the donor's spouse, or a lineal ancestor of these so named.
  7. A Charitable Lead Trust may have one or more charitable income beneficiaries and one or more remaindermen. In addition, the charities may change on a predetermined basis or you may have multiple yearly charities as long as the sum total of the annual amount received by the charities is the sum total amount specified by the trust document.
  8. A Charitable Lead Trust that is not a Grantor Charitable Lead Trust is taxed as a complex trust. However, the trust is entitled to a charitable deduction for payments made to the charity.
  9. Charitable Lead Trusts must use a tax calendar year.
Click here to view chart of Charitable Lead Trust.
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