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Simple English definitions for legal terms
charitable lead trust
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A quick definition of charitable lead trust:
A charitable lead trust is a type of trust where some of the money earned goes to a charity, but the assets do not go to the charity when the trust ends. The person who sets up the trust decides how long it will last, and during that time, a charity gets some of the money earned by the assets. When the trust ends, the assets go back to the person who set up the trust or someone they choose. There are two types of charitable lead trusts: grantor and non-grantor. In grantor trusts, the person who sets up the trust controls it and gets a tax deduction, but they have to pay taxes on the money earned. In non-grantor trusts, the trust pays the taxes and gets the tax deductions, and there are fewer taxes when the trust ends.
A more thorough explanation:
A charitable lead trust is a type of trust that allows individuals to donate a portion of their income to a charity for a specific amount of time. The charity receives a certain amount of income produced by the assets, and when the trust ends, the assets go back to the grantor or whomever the grantor chooses. The grantor cannot terminate the trust at will; they terminate on the date specified when created.
For example, John sets up a charitable lead trust for 10 years and donates $100,000 to a charity. The charity receives $5,000 per year for 10 years, and at the end of the 10 years, the remaining assets go back to John or his chosen beneficiary.
Charitable lead trusts can be set up as grantor or non-grantor charitable trusts. In grantor charitable trusts, the grantor retains control of the trust and can take a tax deduction when the trust is created. However, the grantor must pay the taxes on income generated by the trust. In non-grantor trusts, the trust pays the taxes and receives the tax deductions from the charity payments, but there are much fewer transfer taxes when the trust ends compared to grantor charitable trusts.
Overall, charitable lead trusts allow individuals to support a charity while still retaining control of their assets.