Charitable Lead Trust (Definition)

A Charitable Lead Trust takes property from an individual’s estate, distributes the income to a charity, and then passes the balance of the assets in the trust to the heirs of the estate at the individual’s death. Thus, property that produces or could produce taxable income is removed from the estate and replaced with a charitable deduction. The charitable deduction is for the present value of the income interest given to the charity. IRS rates and tables help to determine the present value of the income interest. The property used for this gift is usually property that would involve a sizable capital gains tax if sold and converted to income producing property.