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By Shaina Case

As you recall, charitable trusts allow a donor to set aside assets for one or more charities. Two different types of charitable “split interest” or “mixed” trusts exist: (1) charitable remainder trusts (“CRTs”); and (2) charitable lead trusts (“CLTs”).

We reviewed the basics of CRTs in a prior post, making a discussion of CLTs the focus here.

CLTs operate so that a portion of the trust’s assets is first donated to a charity and, after a certain time period, the remainder of the trust is transferred to the trust non-charitable beneficiaries. There are two CLT payment methods to make to a charitable beneficiary—Charitable Lead Annuity Trusts (“CLAT”) and the Charitable Lead Unitrust (“CLUT”).

In CLATs, the charitable beneficiary receives an annuity—an amount determined without regard to the trust’s value of assets. Assets cannot be added to a CLAT after its initial funding. Thus, until the annuity term ends or the assets are exhausted, the charitable beneficiary’s payment is independent of how well or poorly the CLATs’ investments perform. In CLUTs, the charitable beneficiary receives unitrust payments—a fixed percentage of the value of the trust balance and assets can be added at any time.

Similar to CRTs, it is a good idea to collaborate with an estate planning attorney, CPA, and CFA in determining whether a CLT is an option for you.