Charitable Lead Trusts

Updated August 3, 2026. Quick answer: a charitable lead trust pays the charity first, for a set period, and whatever is left then goes to your family. It is the mirror image of the more common charitable remainder trust, and it exists mainly to move future growth to the next generation at a reduced transfer-tax cost.

Lead versus remainder

• Charitable remainder trust: pays you (or your beneficiary) for a term or for life, and the charity receives what is left at the end.
• Charitable lead trust: pays the charity for the term, and your family receives what is left at the end.

Same two parties, opposite order. The order determines who benefits from growth, which is the entire point of choosing one over the other.

Why anyone uses one

The value of what eventually passes to the family is computed at the outset, using an IRS discount rate, by subtracting the value of the charity’s payment stream. If the assets in the trust then grow faster than that assumed rate, the excess reaches the family without being counted in the original calculation.

Which tells you when it works and when it does not: it is a bet on the trust’s assets outperforming an assumed rate over the term. If they underperform, the family receives less than the arrangement was designed around, and the charity is paid regardless.

The two variants

• Annuity trust: the charity receives a fixed dollar amount each year. Predictable for the charity; the family absorbs all the investment variability.
• Unitrust: the charity receives a fixed percentage of the value each year, revalued annually. The charity shares in the variability.

What to be clear-eyed about

• Irrevocable, and long. These run for years or decades.
• Real administrative cost — trustee, valuations, its own tax return.
• The deduction rules depend on which variant you choose and on how the trust is taxed, which is a decision to take with counsel rather than from a page.
• It is not a good fit for modest estates. The complexity and cost only make sense where the transfer-tax saving is large.

Honest gaps

We have deliberately not stated deduction percentages or the current IRS discount rate. Those change, and the grantor-versus-non-grantor distinction materially changes the income tax treatment. This page is the shape of the instrument, not a specification.

Related: charitable bequests · the charitable gift annuity.

General information drawn from the Internal Revenue Code, Treasury regulations, IRS publications and the relevant state statutes, not legal or tax advice. Dollar figures are adjusted regularly and the state-law half differs from state to state, so check the current year and your own state before you act on a number.