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Charitable Lead Trust in DC

A charitable lead trust is a trust in which the term interest is paid to a charitable beneficiary, but the remainder interest either reverts to the grantor or is paid to a non-charitable party at the end of the trust term.

Charitable remainder trusts and charitable lead trusts are opposite concepts. Whereas a charitable remainder trust will hold a trust in the term of years and then revert to a charity, a charitable lead trust will hold the trust for a term of years to a charity and then revert to a non-charitable interest.

Structured as a Grantor Trust

When a charitable lead trust is structured as a grantor trust, the grantor can obtain an income tax charitable deduction in the year that the trust is established. The grantor’s deduction for income tax purposes is limited to 30% of the grantor’s contribution because it is a gift for the use of rather than to the charity. The grantor’s immediate deduction is recaptured over the term of the trust as the trust income is taxed to the grantor.

Why it is Recommended

The recommendation of a charitable lead trust is made as part of an overall comprehensive estate tax plan by a DC trusts lawyer. Charitable lead trust and charitable remainder trust are complex estate and income tax concepts that are recommended or implemented after an analysis is completed of an individual’s overall estate or income tax exposure and as one taken into consideration of the nature and assets and goals of a grantor.