Charitable Lead Trust (CLT)
The mirror image of a charitable remainder trust — the charity gets annual payments for a term, then the remainder goes to your heirs. Moves appreciating assets to the next generation at a discounted gift-tax value while supporting a charity you care about.
A Charitable Lead Trust () is an irrevocable trust in which a qualified charity receives annual payments for a set term (or for someone's lifetime), and at the end of the term the remaining trust assets go to non-charitable beneficiaries — usually the grantor's children or grandchildren. The CLT is the structural inverse of the Charitable Remainder Trust (): in a CRT, the donor or a non-charitable beneficiary gets the income and the charity takes the remainder; in a CLT, the charity gets the income and family takes the remainder.
Two flavors exist: the Charitable Lead Annuity Trust (CLAT) pays the charity a fixed annual dollar amount; the Charitable Lead Unitrust (CLUT) pays a fixed percentage of annually-revalued trust assets. CLATs are much more common because they allow "zero-out" gift-tax planning — if the annuity stream and term are calibrated correctly against the current IRS § 7520 rate, the remainder interest has essentially zero present value, so no gift tax is due on funding.
When it works well: the trust is funded with assets expected to appreciate faster than the § 7520 rate. All growth above that rate passes to the remainder beneficiaries free of gift tax. CLATs are a favorite technique in low-interest-rate environments and with closely-held stock or pre-IPO equity.
Grantor vs. non-grantor: a grantor CLAT gives the grantor an upfront income-tax charitable deduction (the full present value of the charitable stream), but the grantor is then taxed on all trust income going forward. A non-grantor CLAT gets no upfront deduction but is taxed as a separate entity that can itself take annual charitable deductions for the payments it makes.
Tagged 🔴 — CLTs require § 7520 calibration, compliance with the IRS's sample CLAT forms (Rev. Proc. 2007-45 and 2007-46), and ongoing administration. Not DIY-able.
State-specific notes
CLTs are federal-tax constructs. For a grantor CLT the income-tax deduction is taken in the year of funding, subject to AGI limits of § 170(b). For non-grantor CLTs the trust itself takes § 642(c) deductions annually for amounts actually paid to charity.
Virginia follows federal charitable-deduction rules for state income tax. No separate Virginia filing for the CLT's charitable payments beyond the federal Form 1041 (for non-grantor CLTs) or the grantor's Form 1040.
West Virginia conforms to federal treatment of charitable lead trusts.
CLTs are governed by federal tax rules (IRC §§ 170, 2055, 2522, 2702) and administered in Alabama under the Uniform Trust Code (Ala. Code § 19-3B-101 et seq.). Alabama allows a state income-tax charitable deduction tracking the federal itemized-deduction framework. No state estate-tax overlay applies.
References
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