A Charitable Lead Trust (CLT) gives donors the opportunity to provide a meaningful gift to the Ann Arbor Area Community Foundation while providing for their heirs.  A CLT provides an income stream to AAACF for the term of the trust.  At the end of the trust's term, the remaining assets pass to heirs or other designated beneficiaries.

A charitable lead trust can result in significant gift or estate tax savings.  Because the assets are deemed “frozen” for gift and estate tax valuation purposes at the time the trust is funded, any further appreciation in the trust's assets will pass tax free to a donor's heirs.

Charitable lead trusts can be established during a donor's life or by will. Generally, the trust term is 10 years or more.

There are two general types of charitable lead trusts:

• A Charitable Lead Annuity Trust (CLAT) will provide a fixed dollar amount each year to AAACF.
• A Charitable Lead Unitrust (CLUT) will provide a fixed percentage of the trust's assets as valued each year to AAACF.
   

Benefits of a Charitable Lead Trust include:

• If a CLT is created during a donor's lifetime, donors can avoid tax on the income from the assets placed in the trust.
• Donors can pass all remaining trust assets to heirs.
• Future appreciation in the trust's assets will pass tax free to heirs.
• If the donor dies during the trust term, the assets placed in the CLT are not included in his/her estate for tax purposes.
• Donors can avoid a negative tax impact by funding the trust with tax-exempt securities.
• Trust assets benefit from professional trust management.
• The yearly income paid to the Community Foundation is excluded from the donor's taxable income during the trust term.
• Donors can make a meaningful gift to AAACF, a gift that will give forward - For good. For ever.

A Charitable Lead Trust, one in which donors and their spouses are not taxed on the trust's income and  the remaining assets are transferred to family members, allows the ultimate transfer of property at a lower transfer tax cost. Estate tax savings from a CLT ensure that family members will receive substantially more than if the property were left to them at the donor's death. This mechanism is especially useful for property that has the capacity to appreciate.  CLT's are a valuable estate planning tool for donors who can afford to forgo the income generated from the  gifted property during the term of the lead trust.

A CLT created in a will can substantially reduce the estate taxes payable at the time of death because of the charitable deduction for AAACF's charitable interest in the annuity or unitrust payment. The value of the charitable interest depends on the length of the trust and the amount or percentage to be paid out each year.

We are happy to work with donors and their professional advisors to help draft a trust document.  For more informationon establishing a Charitable Lead Trust, please contact AAACF CFO Doug Weber.