What is a charitable lead trust?

A charitable lead trust (CLT) is a type of trust that is set up to provide a stream of income, or a “lead”, to a charity. It is commonly used by individuals, couples, and families in California who wish to benefit both their dependents and a charitable organization, such as a university or a nonprofit. When setting up a CLT, the trustor, or person creating the trust, can specify how much of the trust’s income should be paid to the charity each year for a certain period of time. This period of time is usually set for up to 20 years. The remaining income generated from the trust is then passed to the trustor’s beneficiaries, usually their children or grandchildren. Beneficiaries are able to receive the income from the trust from the date the trust is created, allowing them to reap the benefits of the income it generates. At the end of the period of time specified in the trust, the charity’s lead income stream will end, and any remaining assets in the trust will be distributed to the beneficiaries. Because of this, CLTs are also a way for the trustor to save on estate taxes, as the trust’s value is reduced due to the lead income stream given to the charity, resulting in fewer taxes owed. Overall, CLTs can provide benefits to both the trustor’s dependents and a charitable organization, while also potentially reducing their estate taxes. It is important to seek legal assistance when setting up a CLT so that the trust is established in accordance with California’s trust and estates laws.

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