There are two main types of charitable lead trusts: grantor charitable lead trusts and non-grantor charitable lead trusts. 

Grantor charitable lead trust

A grantor charitable lead trust is one in which the grantor, or the creator of the trust, is considered the owner of the trust assets. Because the grantor is the owner, they can then take an immediate charitable deduction on their taxes. This dedication is based on the value of future donations to their charity of choice. However, the grantor is then responsible for paying taxes on the assets in the trust.

Non-grantor charitable lead trust

With a non-grantor charitable lead trust, the trust itself is considered the sole owner of the trust assets, making the grantor ineligible for an income tax deduction. Instead, the trust itself pays taxes on any undistributed income in the trust. 

Charitable lead trust vs. charitable remainder trust: what is the difference?

The main difference between a CLT and a charitable remainder trust (CRT) is how funds are received by beneficiaries and when. Generally, for a CLT, the chosen charity would receive funds for a set amount of time, and then what remains is dispersed to those appointed (typically an heir or other noncharitable identity). With a CRT, the funds are distributed to the donor during the individual's lifetime, and then upon their passing, the remaining funds are provided to the chosen charity.

• Setting up a CLT may reduce or even eliminate gift and estate taxes on trust assets passing to family. Future gift assets to your loved ones will be valued on the date you establish the trust. So if the gift appreciates in value, your family wouldn’t have to pay taxes on it later.
• You may not be taxed on income earned by the trust. Other tax benefits vary and you should ask your financial advisor for more information.
• St. Jude or other favorite charities can benefit from receiving annual distributions from the trust and you can see the impact of your gifts. 

If one or more of the following apply to you, a CLT may be something to explore:

• You have a large estate that would be subject to gift tax and estate tax.
• You have assets you want to keep in the family and have a likelihood of significant appreciation in the future.
• You want to make significant annual gifts to a charity while you are living and also pass assets to beneficiaries at a potentially lower gift or estate tax cost.