Charitable Remainder Trust and Charitable Lead Trust

Sep 7, 2022 | Financial Trust Legal Blogs | Elder Law P.A

People who have significant assets and would like to donate a portion of them to their favorite charity should consider establishing a trust. Millions of Americans donate money, clothes, and personal items to charities every day. For the majority, except for a sense of doing something good, there is no other reward. For wealthier citizens, donating to charities is a great way to lower taxes. By donating to a charitable remainder trust, investors can sell their assets without alerting the IRS and triggering a capital gains tax. Similarly, placing assets into a charitable lead trust also decreases the estate size and, consequently, the amount of estate taxes owed. Hence today, charitable donations have become a tool for estate and income tax planning.

There are two types of charitable trusts: the charitable lead trust (CLT) and the charitable remainder trust (CRT). Which one is right for your needs? The choice of charitable trust will depend on your estate planning goals and personal preferences. Read on for the pros and cons of the two types of charitable trusts.


Both the charitable lead trust and the charitable remainder trust require that the trusts be funded, meaning you put assets into the trust. Once the trust is established, any income or profits will go toward the trust that you have selected during its existence.

In general, both charitable lead trusts (CLT) and charitable remainder trusts (CRT) involve valuable assets being placed in a trust that generates an income. At the end of the terms of the trust, the assets will be distributed to the named charity. The terms of the trust are established by you and your estate planning lawyer when you first create the trust agreement.


With CLT, the charity is the first benefactor of the assets. This means the charity gets first dibs on the profits generated by the funds in the trust. At the end of the term of the trust, the residual assets are distributed between the trust creator and/or other selected beneficiaries.

With CRT, the income from the trust is usually first paid to the grantor and/or other named beneficiaries until the trust expires, which may be after a number of specified years (usually no more than 20) or after one or more lifetimes. When the terms of the trust end, the remainder of the assets are then distributed to the charity named in the trust agreement. A charitable remainder trust is the reverse of the CLT because the beneficiaries get first dibs on the profits and then the remaining assets are donated to the named charity.

In general, a CLT is more likely to benefit from estate and gift tax benefits compared to a CRT.


Both the CLT and CRT may either be a unitrust or an annuity trust. With a unitrust, the annual payment does vary depending on the asset value in the trust. With an annuity trust, the grantor selects a fixed amount of money when creating the trust agreement. This money is then paid to the charity or income beneficiary each year.


While a CLT does have many advantages, it is not for everyone. One of the advantages of the CLT is that any appreciation in the trust assets is not subject to gift tax or estate tax when the assets are distributed to the trust beneficiaries at the end of the charity’s term. Further, the grantor’s estate may also deduct from the federal gift and estate tax the amount of the total payments made to the charity.

Moreover, there may also be income tax deductions available if the trust is a non-grantor trust. Overall, A CLT may be a good option for assets that generate significant income on a regular basis.

Today, most people who regularly donate to charities usually have a management company, lawyer, or accountant to oversee and administer the trust. Similarly, large charities also have their own accountants and management team who work in tandem with the donors to ensure that both sides benefit from this endeavor.


One reason why a CLT is not for everyone is that it is considered an irrevocable trust, meaning that once the trustor has created the trust and placed the assets in the trust, they cannot be removed or changed by the grantor. Therefore, the grantor must be sure that he or she can afford to give up the ownership of the asset.

Further, any asset distributed to the beneficiaries at the end of the charity’s term may be deemed as a gift and trigger taxes. Also, if the asset value in the trust drops during the term of the charity, the beneficiary may not receive as much money as the grantor had intended.

CRTs, like CLTs, are also irrevocable. A CRT is a good option for an asset, such as real estate, stocks, or agricultural land that has appreciated significantly over the years but has provided little income. Individuals holding these assets can be faced with significant federal and state capital gains taxes if the assets were to be sold. Therefore, most people hang onto these assets until death, but this also increases the size of the taxable estate. Hence, donating these assets can avoid tax issues, but this also deprives the donor of any income from the assets.

The ideal solution is to place the assets in a CRT that offers favorable tax status. In fact, one can sell the assets without being encumbered with tax. The asset would then pay the owner or the select beneficiaries an income stream that may range from 5-50% of the value of the assets at the end of the trust term. Plus, when the trust expires, the selected charity becomes the recipient of the remaining assets in the trust.


Depending on your needs and circumstances, you can benefit from any number of trusts. Since all the trusts are irrevocable, it is vital to consult with an experienced estate lawyer who has experience dealing with charities and donations. Elder Law, P.A. has a very knowledgeable staff who can help you identify which trust may be the best one for you. Call us today at 1-561-933-4465 to learn more. We will be happy to answer your questions.

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