Key Term

What is Charitable Lead Trust?

Definition

A charitable lead trust (CLT) is a type of irrevocable trust that provides income payments to one or more charitable beneficiaries for a specified period, either a fixed term of years or during the lifetime of one or more individuals. After this period ends, the remaining trust assets are distributed to non-charitable beneficiaries, typically family members of the donor.

Significance

Charitable lead trusts are significant tools in philanthropic planning as they offer substantial benefits for both charitable giving and wealth transfer strategies. They allow donors to support their favorite charities while potentially reducing gift and estate taxes on assets passed to heirs. CLTs are particularly attractive during periods of low interest rates, as they can help wealthy individuals transfer appreciation on assets to the next generation with minimal gift or estate tax consequences while simultaneously fulfilling their charitable objectives. This makes them a valuable vehicle for donors who want to balance charitable giving with preserving family wealth.