Last updated: October 2026
A charitable lead trust is an irrevocable trust that pays a charity first, for a term of years or for someone’s life, then passes the remaining assets to your family or other beneficiaries. It is the reverse of a charitable remainder trust. The charity’s payments must be a fixed annuity or a fixed percentage of the trust’s value each year. Families often use one to support charity now while passing assets to heirs later. Bay Legal drafts the trust, and your CPA advises on the tax results.
Charitable lead trust (CLT): an irrevocable trust that pays charity for a set period, then distributes what remains to noncharitable beneficiaries.
A charitable lead trust is one of several tools covered on our charitable estate planning page.
How does a charitable lead trust work?
- Fund the trust. You transfer assets to an irrevocable trust, during life or at death through your will or living trust.
- Charity receives payments. The trust pays one or more charities every year for a set number of years or for the life of a permitted person.
- The remainder passes to family. When the term ends, the remaining assets go to your children, grandchildren or other beneficiaries, either outright or in further trust.
What are the types of charitable lead trusts?
Federal law allows only two payment forms for the charity: a guaranteed annuity or a fixed percentage of the trust’s value, revalued each year (IRC sections 170(f)(2)(B), 2055(e)(2)(B) and 2522(c)(2)(B)). The trust is also either a grantor or a non-grantor trust for income tax purposes.
| Type | How it works | Key point |
|---|---|---|
| Charitable lead annuity trust (CLAT) | Pays charity a fixed dollar amount each year | Growth above the IRS assumed rate passes to family |
| Charitable lead unitrust (CLUT) | Pays charity a fixed percentage of the trust’s value, revalued yearly | Charity shares in growth |
| Grantor CLT | You are treated as the trust’s owner for income tax | An upfront income tax deduction, but you pay tax on trust income each year |
| Non-grantor CLT | The trust is its own taxpayer | No upfront deduction for you; the trust deducts its charitable payments |
What rules apply to a charitable lead trust?
- Grantor trust recapture. If you stop being treated as the owner of a grantor CLT during the term, including at death, part of your original deduction is added back to your income (IRC section 170(f)(2)(B)).
- Non-grantor trust deduction. A non-grantor CLT deducts amounts of gross income paid to charity under the trust’s terms, without the usual percentage limits (section 642(c)).
- Measuring lives. If the term is measured by a life, only the donor, the donor’s spouse, or a lineal ancestor (or spouse of one) of the remainder beneficiaries may serve (Treas. Reg. section 25.2522(c)-3(c)(2)(vi)(a)-3)).
- Generation-skipping transfers. For a CLAT passing to grandchildren, the GST exemption is measured when the charitable term ends, not when the trust is funded (section 2642(e)). A CLUT uses the ordinary rules, fixed at funding.
- Private-foundation rules. Self-dealing rules apply. Excess business holdings and jeopardizing-investment rules also apply unless the charity’s interest is worth 60% or less of the trust (section 4947).
Bay Legal does not provide tax advice. Whether a grantor or non-grantor CLT fits your situation, and the size of any deduction, depends on the monthly section 7520 rate and your tax picture. Review those questions with your CPA.
What filings does a charitable lead trust need?
A CLT files IRS Form 5227 each year as a split-interest trust. In California, the trustee must register with the Attorney General’s Registry of Charitable Trusts within 30 days after the trust first receives property, because the charity’s interest begins right away (Government Code section 12585). California generally follows the federal trust rules (Revenue and Taxation Code section 17731), but limits a grantor’s upfront charitable deduction to 50% of federal adjusted gross income.
Frequently Asked Questions
What is the difference between a charitable lead trust and a charitable remainder trust?
They run in opposite directions. A charitable lead trust pays charity first and then passes the remaining assets to family. A charitable remainder trust pays you or your family first and then passes the remainder to charity. Both are irrevocable, and both are split-interest trusts that file IRS Form 5227 each year.
Do I get an income tax deduction for a charitable lead trust?
Only with a grantor charitable lead trust, where you are taxed on the trust’s income each year. In that case the deduction is taken in the year you fund the trust, and part of it can be recaptured if you stop being treated as the owner during the term. A non-grantor trust gives you no upfront deduction. Your CPA should compare the two.
Does a charitable lead trust have to register in California?
Yes. Under Government Code section 12585, the trustee must register with the Attorney General’s Registry of Charitable Trusts within 30 days after the trust first receives property. Unlike a charitable remainder trust, a lead trust cannot wait, because the charity’s interest begins as soon as the trust is funded.
Related Questions
Can a charitable lead trust be created at death?
Yes. A will or living trust can direct that a charitable lead trust be funded at death. The estate may then claim a federal estate tax charitable deduction for the value of the charity’s lead interest.
Who can be a measuring life for a lead trust?
Only the donor, the donor’s spouse, or a lineal ancestor (or that ancestor’s spouse) of all the remainder beneficiaries, under Treasury regulations. Other people cannot be used to set the trust’s term.
Can a lead trust hold a family business?
It can, but federal excess-business-holdings rules may limit it when the charity’s interest is worth more than 60% of the trust. Plan the ownership structure with your attorney and CPA before funding.
About the attorney
Sivendra Ganesh Maraj handles estate planning at Bay Legal, including charitable trusts built into a client’s living trust and overall plan. Sivendra works with clients’ CPAs and financial advisers so the trust documents and the tax planning fit together. Charitable planning is part of Bay Legal’s estate planning practice.
Talk to a California estate planning attorney about a charitable lead trust
If you are considering a charitable lead trust, list the charities you want to support, the assets you might contribute and who should receive them afterward, and talk with your CPA about the tax picture. To discuss drafting a CLT, call the office nearest you or email intake.
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This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. For advice on your specific situation, contact a licensed California attorney.