What is a Charitable Lead Trust?
The Charitable Lead Trust (CLT) is a powerful way to make a future transfer of assets to your heirs at a significantly reduced gift and estate tax cost, while also supporting Williams College with income. During a specified number of years, an annuity or a fixed percentage of the trust assets is paid to Williams College. At the end of the trust term, the assets are passed to the beneficiaries you name. You choose the trustee.

You can fund a CLT with cash, publicly traded securities, closely-held stock, income-producing real estate, partnership interests, or a combination of the above. You can establish a CLT during your lifetime, as a testamentary trust through your will, or through a pour-over from a "dry" trust established during your lifetime.

Two Types of Lead Trusts
There are two basic types of Lead Trusts: Non-Grantor and Grantor.

In a non-grantor CLT—the most common type—the trust assets revert to your children, grandchildren, or other heirs at the end of the trust term. A non-grantor CLT provides a gift tax deduction, and is useful in reducing the cost of intergenerational wealth transfers.

In a grantor CLT, the trust assets revert to you, rather than to your heirs, at the end of the trust term. A grantor CLT provides a large current income tax deduction, and may be useful if you wish to accelerate future deductions into the current year.

Note: the information provided below pertains to non-grantor CLTs only.

What Are The Advantages of a CLT?
For people who have significant assets, a CLT provides gift and estate tax relief:

1. You receive a charitable gift tax deduction for the present value of the annual trust payments to Williams College. The amount of this gift tax deduction is typically a large percentage of the total assets contributed to a CLT, leaving only a small portion of the gift amount subject to the gift tax.
2. Because the gift tax deduction and the amount subject to gift tax is determined at the time assets are contributed to a CLT, any appreciation of the assets that takes place during the term of the trust is not subject to additional gift or estate tax. As a result, the amount that you ultimately transfer to your heirs may be much larger than the amount upon which the gift tax is imposed.
3. The income earned by a CLT is excluded from your gross income and, therefore is not taxable to you. In effect, this results in a reduction of your taxes over the trust term.
4. The assets you contribute to a CLT are removed from your taxable estate, reducing your estate tax exposure.
5. Unlike most other gift planning arrangements, the benefits of a CLT are immediate to Williams. Payments from a CLT can be used to fund capital projects as well as endowed funds.

EXAMPLE (based on 5% IRS discount rate)

A donor establishes a Non-Grantor Charitable Lead Annuity Trust with a 20 year term and a payout rate of 5%. The trust is funded with appreciated property valued at $1,000,000 (cost basis 50%), so annual payments of $50,000 are made to Williams during the term of the trust. When the trust terminates, the trust principal will pass to the donor's children. It is assumed that the average total return on the trust assets is 9%. The donor has a gross estate of $5,000,000, with no prior taxable gifts or transfers to heirs.

Gross Principal	$1,000,000
Annuity to Williams College (for 20 years)	$50,000
Gift Tax Deduction	$623,110
Amount Subject to Gift Tax	$376,890
Gift Tax Paid By Donor (due to gift tax exemption)	$0
Projected Benefit to Heirs with CLT	$2,090,478
Projected Benefit to Williams with CLT	$1,000,000
Total Projected Benefit with CLT	$3,090,478
Projected Benefit to Heirs without CLT	$2,290,610
Projected Benefit to Williams without CLT	$0
Total Projected Benefit without CLT	$2,290,610

How Do I Create a CLT?
Donors establishing a CLT should be advised by an attorney who is experienced in the area of charitable trusts and estate planning. Call (413) 597-3538, email the Williams College Office of Gift Planning, or complete the personal illustration form on this website so that we can assist you through every step of the process.

Gifts of Other Assets
How to give other assets, such as: Retirement Plans, Charitable Bargain Sales, Closely-Held Stock, Partnership Interests, Tangible Personal Property, and Life Insurance.