What is a charitable lead trust and how does it work?

A charitable lead trust is a trust created to provide income either to a charity or non-charitable entity for a fixed period, with the remainder of the trust passing to a designated beneficiary after the trust’s term expires. This type of trust is often used to reduce estate and gift taxes. In Arizona, creating a charitable lead trust requires a written document, which outlines the terms of the trust, and a qualified trustee. The trustor (the person creating the trust) will transfer assets to the trust and provide instructions on how the trustee should manage and distribute the funds. The trustor can choose to make the trust permanent or have it terminate after a certain period of time. During the trust’s term, the trustee will pay an annuity or unitrust amount to the charitable beneficiary or non-charitable entity. This amount must be fixed and cannot fluctuate. At the expiration of the trust’s term or upon the death of the trustor, the remaining trust assets will be distributed to the designated beneficiary or beneficiaries named in the trust. The trustor of the charitable lead trust can use this method to reduce gift and estate taxes, as the value passed to the designated beneficiary is reduced by the amount of money previously paid to the charitable beneficiary.

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What is a charitable lead trust and how does it work?

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