Charitable Lead Trusts

Source: AARP.org | November 25, 2002

Charitable Lead Trusts

A charitable lead trust (CLT) is one of the most effective tools to pass wealth to heirs with a minimum of taxation while making a generous gift to the AARP Foundation. It creates substantial charitable deductions, provides income for the Foundation for a period determined by the donor to use temporarily and recuperates the principal for the donor or family member in a specified number of years.

A charitable lead trust can be created during a person's lifetime or by will. The gift is placed in a lead trust for a specified period of years. Payments to the AARP Foundation may be a fixed amount (annuity trust) or a fixed percentage of the value of the trust (unitrust). The AARP Foundation receives the interest earned on the gift until the principal is returned to the donor or to individuals named by the donor, such as children or grandchildren.

There are two types of charitable lead trusts: the non-grantor trust allows the principal to be distributed to the donor's heirs at the termination of the trust period. It is the one most commonly used because it favorably affects estate taxes. The donor does not receive an income tax charitable deduction, but is not taxed on the trust's income received by the Foundation.

The grantor trust provides the advantage of a charitable deduction to the donor when the trust is established. The donor, however, is taxed on any income the lead trust assets generate. Contact us for more information about grantor trust at 1-800-775-6776 or email plannedgiving@aarp.org.

What Are The Best Assets To Use In A Lead Trust?

• Cash or other liquid assets (CD's, stock);
• Income-producing property with high appreciation potential — this allows the transfer of assets to heirs at a very low cost; and
• Interest in a family business or family limited partnership.

Who Are The Best Candidates?

• A person with a net worth who is concerned about estate taxation;
• A person who will receive a large capital gain due to rapid appreciation of an asset;
• A person who has more income than is needed to live comfortably;
• A person who wishes to transfer assets to heirs at reduced gift and estate tax cost; and

A Charitable Trust Must Have A Trustee

Donors may choose to serve as their own trustee, while others elect to have their financial advisor, a bank official, or a financial services firm serve as trustee.

To learn more about your giving options, please contact:

Office of Planned Giving
Tel: 1-800-775-6776
Email: plannedgiving@aarp.org