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When it comes to advanced estate planning, charitable trusts offer a way to support causes you care about while also creating tax benefits for your estate and heirs. Two of the most common structures are Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs). While they sound similar, they work in very different ways.
What Is a Charitable Lead Trust (CLT)?
A Charitable Lead Trust provides income to a charitable organization for a set period of time. Once that period ends, the remaining trust assets are transferred to non-charitable beneficiaries, such as family members.
Key Features of CLTs:
- The charity receives income first.
- After the trust term, remaining assets pass to heirs.
- Can reduce estate and gift taxes.
- Allows you to support charities during your lifetime while still providing for your family.
What Is a Charitable Remainder Trust (CRT)?
A Charitable Remainder Trust works in the opposite way. With a CRT, the non-charitable beneficiaries (such as you or your family) receive income for a certain number of years or for life. After that term ends, the remaining trust assets go to a charitable organization.
Key Features of CRTs:
- Beneficiaries (often family or the grantor) receive income first.
- At the end of the trust term, assets transfer to charity.
- Can provide an income stream while reducing capital gains taxes.
- Allows significant charitable giving at the end of the term.
Comparing CLTs and CRTs
| Feature | Charitable Lead Trust (CLT) | Charitable Remainder Trust (CRT) |
|---|---|---|
| Who gets income first? | Charity | Non-charitable beneficiaries (family/grantor) |
| Who gets remainder? | Family/heirs | Charity |
| Tax benefits | Reduces estate & gift taxes | Can reduce income & capital gains taxes |
| Best for | Supporting charity now, leaving assets later | Providing income to family first, then charity |
Which Trust Is Right for You?
The choice between a CLT and a CRT depends on your goals:
- If your priority is to support charity during your lifetime and still pass assets to family, a CLT may be the better fit.
- If you want to provide income to yourself or loved ones now and leave a lasting charitable legacy later, a CRT could be the right option.
Final Thoughts
Charitable trusts are powerful tools for combining philanthropy with estate planning. Whether you choose a CLT or CRT, you can create meaningful impact while reducing taxes and preserving wealth for future generations. Because these trusts are complex, working with an experienced estate planning attorney is crucial to ensure your trust is structured correctly and meets your goals.
