Charitable Lead Trust

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Charitable lead trusts allow individuals to set-up trusts where some of the income goes to a charity, but when the trust ends, the assets do not go to the charity. The way these trusts operate is 1) the grantor sets up the trust for a specific amount of time 2) a charity receives a certain amount of the income produced by the assets 3) the assets go back to the grantor or whomever the grantor chooses when the trust terminates. A key part of charitable lead trusts is that the grantor cannot terminate the trust at will; they terminate on the date specified when created. 

These trusts can be set-up as grantor or non-grantor charitable trusts. Grantor charitable trusts keep the trust under control of the grantor and allow the grantor to take a tax deduction when the trust is created. However, the grantor in these trusts must pay the taxes on income generated by the trust. For non-grantor trusts, the trust pays the taxes and receives the tax deductions from the charity payments, but when the trust ends, there are much less transfer taxes than in the case of a grantor charitable trust. 

Compare to: Charitable Remainder Trust

[Last updated in November of 2021 by the Wex Definitions Team]