What Does Charitable Lead Trust Mean?
A charitable lead trust refers to a situation in which the income of a trust is given to a charitable institution, whether public or private, for a specific number of years. After that period, the remaining income goes back to the owner of the trust or its beneficiaries.
Insuranceopedia Explains Charitable Lead Trust
There is a tax deduction benefit if a portion of the income from a trust is donated to charity. In earlier decades, if the estate donated to charity while the estate owner was still alive, tax deductions were applied twice: once from the amount paid to charity and once for the income of the estate. However, a law passed in 1969 that put an end to these excessive tax deductions.
Today, if the grantor is deemed the owner of a charity trust, they still pay taxes for that trust, while the charity organization that receives the income is not taxed. However, if the ownership of the trust is transferred to another person or entity, the original owner will not be taxed. After the period of income given to charity is finished, the non-charitable beneficiary (usually a family member) of the trust will get reduced taxes for getting the remainder of the trust income.