Charitable Lead Trust

Protect your assets.

If you want to make an impact now at the University of Southern Maine and also provide for your family later, consider setting up a charitable lead trust. A charitable lead trust (CLT) is an irrevocable trust trust that makes payments to the University for a specified period. After the term ends, the remaining trust assets are distributed to non-charitable beneficiaries, like family members. It is often used by individuals with significant assets as a tax-efficient way to transfer wealth to heirs while benefiting a charitable cause. 

There are two main types of charitable lead trusts, and the tax benefits depend on which type is created: 

Non-grantor CLT: The trust is considered a separate entity from you and pays its own taxes. While you do not get an upfront income tax deduction, the trust can claim a tax deduction for the payments it makes to the charity. This structure is often used to minimize gift and estate taxes when transferring assets to heirs. 

Grantor CLT: You (the grantor) remain the owner of the trust assets for income tax purposes and receive an immediate income tax deduction when the trust is funded. However, you must pay taxes on any income the trust generates during its term.

Your charitable lead trust can be structured to make payments in one of two ways: 

• Charitable Lead Annuity Trust (CLAT): The trust pays a fixed, annual amount based on the value of the trust when it was first funded. The payment amount does not change.
• Charitable Lead Unitrust (CLUT): The trust pays a variable annual amount, calculated as a fixed percentage of the trust’s value, which is revalued each year. Payments can increase or decrease based on investment performance.