Over the past few weeks, we’ve been exploring advanced planning strategies that can help successful retirees and pre-retirees be more intentional with their assets — especially when it comes to taxes and legacy planning.
Last week we looked at Charitable Remainder Trusts. This week, we’re examining its counterpart: the Charitable Lead Trust (often called a CLT).
How a Charitable Lead Trust Works
With a Charitable Lead Trust, you transfer assets into an irrevocable trust. The trust then makes regular payments to one or more charities you choose for a set number of years. At the end of that term, the remaining assets pass to your children or other beneficiaries.
Unlike a Charitable Remainder Trust, a CLT typically does not provide a large current income tax deduction. Its primary benefit lies in the estate and gift tax area — it can help reduce the taxable value of assets passed to your heirs while allowing you to support charitable causes during your lifetime.
Real-World Example
Consider a married couple in their late 60s with a combined estate of $42 million. Under 2026 rules, they have a $30 million federal estate tax exemption. Without planning, the $12 million above the exemption would be subject to a 40% federal estate tax — resulting in approximately $4.8 million in estate taxes.
Their goals were to support several charities they care about and reduce the potential estate tax burden on their three adult children.
They funded a Charitable Lead Trust with $10 million in appreciated assets. The trust was structured to pay 5.5% per year to qualified charities for the next 20 years. At the end of the term, the remaining assets pass to their children.
Assuming the trust assets grow at an average of 6% per year, this strategy can potentially reduce the taxable value of that $10 million for estate tax purposes. Because the IRS discounts the gift to the heirs based on the charitable payments being made first, any growth above the IRS discount rate can pass to the family with reduced or eliminated estate tax exposure.
Potential Outcome:
This approach could potentially save the family $2 million to $3.5 million or more in estate taxes compared to doing nothing, while still allowing the couple to make substantial charitable gifts during their lifetime. Their children could ultimately receive significantly more after-tax wealth.
Important Considerations
Charitable Lead Trusts are complex, irrevocable strategies. Once assets are placed in the trust, they generally cannot be removed. There is investment risk inside the trust, and the assets going to charity are no longer available to your family.
This strategy is not suitable for everyone. It typically makes the most sense for families with larger estates who have a strong philanthropic desire and want to reduce potential estate taxes.
Who This Strategy May Be Appropriate For
- Individuals or couples with estates well above the federal exemption
- Those who want to support charity during their lifetime
- Families looking to reduce estate taxes while still passing significant assets to the next generation
Charitable Lead Trusts are one of several advanced tools some families explore as part of a thoughtful estate plan. As with any sophisticated strategy, it requires careful coordination with your estate attorney, tax advisor, and financial planner.
Next Steps
If you’re interested in learning whether strategies like this could play a role in your overall plan, I’m happy to help. I’m currently offering to build your own Smart Retirement Model at no cost or obligation while time slots are available. You’ll see how different approaches could impact your probability of success and your legacy.
You can book a quick 15-minute call on my calendar at [LeonardiFamilyWealthcare.com](https://www.leonardifamilywealthcare.com).
There really is a smarter way to retire.