Give Now or Give Later - The CLT and CRT of Charitable Giving

Even in times of economic uncertainty, many individuals are looking for the best way to support their favorite public charities. For some it's the local women's shelter. For others it's their Alma Mater. Yet others wish to donate to their church or favorite social cause. Either way, there are two very tax efficient ways to donate that should appeal to the benefactor in all of us. These two methods are represented by their abbreviations: CLT and CRT. The CLT is a Charitable Lead Trust. The CRT is the Charitable Remainder Trust. Let's look at each individually. There are several variations of each. We'll just be going over the basics here.

You can give now to your favorite charity by using a CLT. This type of trust allows the donor to transfer an asset to the trust while retaining ownership of the asset. The charity receives the income from the trust for a certain fixed period of time or based on the remaining life of the grantor (gift giver). An analogy would be that you keep the peach tree but you agree to give away the fruit. The charity enjoys the "fruit" for the term of the trust, then the asset passes back to the donor (if a grantor trust) or to the donor's heirs (non-grantor or irrevocable trust). The grantor gets a healthy current tax deduction for the discounted value of the gift. In the case of a non-grantor trust, the "tree" can pass to the heirs without being subject to estate taxes. This type of charitable giving makes even more sense in times of depressed asset prices and low interest rates.

You can give later by using a CRT. In this type of trust, the grantor irrevocably gives assets to the trust for the benefit of the charity. However, the grantor retains the right to the income from the assets, usually for the rest of their life. Once the grantor has passed, the charity gets the remaining trust assets without restriction. This type of trust generates a tax deduction now for the grantor (based on a formula). It also reduces the grantor's overall estate value, reducing future estate taxes. In this case, the grantor gives away the peach tree, but retains the right to keep the fruit until they pass away. This type of gift is usually irrevocable and cannot be changed. Proper advice and planning are required to make sure this strategy fits in with the overall estate plan.

Americans are the most generous people in the world. We consistently lead all other countries in charitable giving. If charitable giving is part of your future estate plan, contact CFS to receive a free estate planning consultation.