How a charitable lead trust works
A CLT pays income to a charity for a term of years, then passes what’s left to your family at a sharply reduced gift-tax cost. It lets you combine real charitable giving with moving wealth to the next generation — the mirror image of a charitable remainder trust.
These are the questions that matter most when you’re looking at a CLT.
What is a CLT?
A CLT is the mirror image of a charitable remainder trust. Instead of paying you first and charity last, it pays a charity first — an income stream for a set term — and then passes whatever is left to your family. Because the charity is paid up front, the gift to your family is valued far below what you put in.
During the term
Charity is paid
For the years you choose, the trust sends an income stream to the charity you named.
At the end
Family receives the rest
When the term ends, whatever is left — including any growth — passes to your children or grandchildren.
How does it cut the gift tax?
Because your family only receives what is left after years of payments to charity, the IRS values that future gift at a small fraction of the amount you contributed. And if the trust’s investments beat the IRS’s set interest rate, that extra growth passes to your family with no additional gift tax.
Giving to family outright
Full gift, full exemption
- The whole value counts as a gift today
- It uses that much of your lifetime exemption
- No charitable benefit along the way
Giving through a CLT
Discounted gift, charity helped
- Only the leftover after charity counts as a gift
- Growth above the IRS rate passes tax-free
- A charity is supported for the whole term
What does it look like in practice?
A CLT lets one structure carry two goals that people usually treat separately.
Without a CLT
James gives to his kids outright
James Caldwell wants to move wealth to his children and also support his charity. Giving to the children outright uses his full exemption on the gift, and the charitable support is a separate matter.
With a CLT
James does both at once
James funds a CLT. His charity receives income for the term, the taxable gift to his children is a fraction of what he put in, and any growth above the IRS rate passes to them tax-free. One structure, both goals.
James Caldwell is a composite example used to show how the planning works — not a real client.
Is a CLT right for me?
Five short choices. Brent reads your answer back to you at the end.
A 30-second guided quiz. Get a personal read on whether a CLT fits.
How Brent helps you
- Looks at whether combining giving and wealth transfer in one trust actually fits your goals
- Chooses between a grantor and non-grantor CLT depending on your tax picture
- Sizes the charitable term and payout to balance the gift and the giving
- Coordinates the deduction and the gift-tax return with your CPA
