Charitable lead trusts

Today, there are more ways than ever to realize your personal vision of philanthropy. The best way to make it happen—while making the most of your giving—is to understand the vehicles available to you, such as a charitable lead trust.

A charitable lead trust (CLT) allows you to place assets into an irrevocable trust—a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary or beneficiaries.¹ The charities you choose will then receive an income stream for the term of the trust. That term can be a specified number of years, or as long as you live. When the trust ends, the remaining assets will pass to your heirs, or to you, depending on the type of CLT you have created.

Here’s how it works:

1. Name a charity or charities as the income beneficiary of the trust.
2. Appoint a beneficiary to receive the assets at the end of the trust’s term (or the assets can be returned to you).
3. Contribute assets into the trust from your estate.
4. The trust pays income to the designated charity or charities for the remainder of your life or the term of the trust.
5. After the trust ends, the trust passes the remaining assets to the designated non-charity beneficiary.

Two types of charitable lead trusts can help you achieve your estate planning goals

You can establish a CLT so that the remaining assets can be transferred either to your heirs or to you. This feature allows you to further customize the trust to help meet your financial, family and charitable giving goals. Consider these options:

1. Grantor Charitable Lead Trust –This type of CLT passes the remaining assets back to you at the termination of the trust. A Grantor CLT is designed to provide a current income tax deduction while retaining assets for your future use. Since trust income is taxable to the grantor, consider tax-managed equity and municipal bonds in the investment strategy.
2. Non-Grantor Charitable Lead Trust –This type of CLT passes the remaining assets to your heirs at the termination of the trust. A Non-Grantor CLT is designed to help transfer assets from your taxable estate. Here the trust income and the charitable deduction are at the trust level. Consider tax managed equity and municipal bonds in the trust’s investment strategy.

In addition, both a Non-Grantor CLT and a Grantor CLT can be set up in one of two ways:

1. Charitable Lead Annuity Trust (CLAT) –This type of trust pays a fixed distribution (e.g., $25,000) to a charity every year based on the value of the trust at the time of funding.
2. Charitable Lead Unitrust (CLUT) –This type of trust pays a variable income distribution (e.g. 5%) to a charity that will increase or decrease based on the annual valuation of the trust.

Is a CLT right for me?

People who choose a CLT typically do so because they want to balance their philanthropic interests with other considerations, such as:

• A need for an effective tax planning tool to help produce a significant income tax deduction or to save on estate taxes when passing assets on to heirs
• A desire to maintain control of principal assets
• The ability to forgo income from those assets for a period of time

How can a CLT benefit me, my family and my charity?

The greatest philanthropic benefit of your CLT is that it provides income to a charity that is important to you, while at the same time helping to meet your income tax and estate planning needs.

Other potential benefits include:

• Your money is working for you and your heirs
• You maintain control over the investment of your assets
• You may enjoy significant income tax benefits, and possibly estate and gift tax benefits
• There is a possible generation-skipping tax charitable deduction
• You can help maximize wealth transfer while reducing transfer taxes
• You establish a legacy by providing income to your favorite charities in your family name

What is the role of my wealth advisor and SEI Private Trust Company (SPTC)?

Your advisor can work with you to:

• Integrate your CLT with your other estate and financial plans
• Help determine which type of CLT best meets your needs
• Recommend the most appropriate investments to fund the trust
• SPTC can serve as a discretionary trustee, which includes investment authority and performing all of the administrative activity, recordkeeping and required tax preparation. SPTC can also serve as trustee or as your trustee’s agent and perform all of the administrative activity, recordkeeping and required tax preparation. In any case, SPTC will work closely with your advisor in the transfer of assets and administration, and if applicable, the trust management.

¹Investopedia

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SEI Private Wealth Management is an umbrella name for various wealth services provided through SEI Investments Management Corporation, a registered investment advisor. Investing involves risk including possible risk of principal.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.

Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.