Consider a charitable lead trust as a tax-saving strategy

On Behalf of | Aug 24, 2021 | Estate Planning |

Have you wished that estate planning tools include a way to reduce taxes during your lifetime while also doing good for those less fortunate? You can do so by creating a charitable lead trust (CLT) that can benefit a charity in Georgia or wherever you choose.

What is a charitable lead trust?

This little-known estate planning strategy is a separate, standalone trust where a portion of the assets are donated annually to a designated charity. It’s also called a split-interest gift because money in the trust goes to the charity and eventually to their heirs upon the passing of those who set it up.

Charitable lead trusts (CLT) work well in low-interest environments. The percentage of money going annually to the selected charity will correspond to the interest rate of the trust investment at the time it was established. You’ll use this amount to file a gift tax return. In most cases, you won’t incur an actual tax on the gift, as it’s just a mandatory requirement imposed by the Internal Revenue Service. In most cases, the money going to your heirs will actually be much higher than the stated amount if the performance of the assets inside the trust is high. CLTs work well when the trust outperforms the original interest rate.

Potential benefits

During your lifetime, your selected charity gets a steady source of annual income, yet the bigger benefit comes in the potential ability to mitigate or even eliminate estate taxes. CLT creation generally comes after you have drawn up your will, powers of attorney for healthcare and finances. It’s just one of an arsenal of tools you can use to protect your personal assets. An attorney can help you through the process.