A non-grantor charitable lead trust (“NGCLT”) provides the grantor with NO income tax deduction. Rather, the grantor receives a gift tax deduction at the time of the gift. On an annual basis, the trust may deduct the payments it makes to charitable organizations on its fiduciary income tax return (a NGCLT is treated as a complex trust and is taxed on its taxable income each year).

Generally, at the end of the trust term, the assets in the trust will be distributed to a family member of the grantor (i.e. his/her child). A NGCLT can be set up as a unitrust or an annuity trust.

A NGCLT may be attractive for those who desire to pass assets to the next generation at a reduced estate/gift tax cost. Depending on federal discount rates at the time of contribution, the length of the trust term and the amount paid out to charities each year, many donors can “zero out” the gift for purposes of the federal gift tax, thereby passing significant assets to children with no estate/gift tax consequences.