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The Healing Wallet
A weekly blog focusing on financial guidance to help you manage wealth, advance your career, and integrate your faith.
Presented by Integritas Wealth Strategies
By Daniel Heidel
Issue No. 3
Charitable Lead Trusts: Putting God First in Your Giving Strategy
Let your favorite ministry receive income for 20 years while still blessing your children.
When King David declared, “But who am I, and what is my people, that we should be able thus to offer willingly? For all things come from you, and of your own have we given you” (1 Chronicles 29:14), he understood a profound truth about giving that many wealthy Christians struggle to implement: how to honor God first while still providing for family. The charitable lead trust (CLT) represents one of the most sophisticated yet biblically aligned strategies for accomplishing both goals simultaneously. This powerful estate planning tool allows you to direct substantial income to your favorite ministries for decades while ultimately transferring wealth to your children at dramatically reduced tax costs—literally putting God first in your giving strategy while building a lasting legacy for your family.
Understanding Charitable Lead Trust Fundamentals
A charitable lead trust operates on an elegant principle: you transfer assets into a trust that pays income to charitable organizations for a specified term, after which the remaining assets pass to your designated beneficiaries—typically your children or grandchildren. Think of it as the reverse of a charitable remainder trust, where charity receives the “lead” interest and your family receives the “remainder” interest.
The beauty lies in the timing and tax treatment. During the trust term, your chosen ministries receive steady, predictable income that enables them to plan and execute long-term ministry goals. Meanwhile, the remainder interest passes to your heirs at a significantly reduced gift tax value, calculated using IRS assumptions about growth rates and present value.
For Christian families with substantial wealth, CLTs offer a unique opportunity to live out Matthew 6:33: “But seek first the kingdom of God and his righteousness, and all these things will be added to you.” By literally putting charitable giving first in the trust structure, you’re aligning your estate planning with biblical priorities while achieving remarkable tax efficiency.
Charitable Lead Annuity Trusts (CLATs) vs. Unitrusts (CLUTs)
The two primary types of charitable lead trusts serve different purposes and work better in different economic environments. Understanding their distinctions is crucial for optimal implementation.
Charitable Lead Annuity Trusts (CLATs) pay a fixed dollar amount annually to charity, regardless of trust performance. For example, a $2 million CLAT might pay $100,000 annually to your church for 20 years. If the trust assets grow beyond what’s needed to make these payments, the excess eventually passes to your heirs. CLATs work best when you expect trust assets to outperform the IRS’s assumed growth rate (currently around 5.4% as of 2024).
Charitable Lead Unitrusts (CLUTs) pay a fixed percentage of trust assets, recalculated annually based on the trust’s value. Using the same example, a 5% CLUT would pay $100,000 in year one (5% of $2 million), but the payment would fluctuate based on trust performance. If assets grow to $2.5 million, the next payment would be $125,000. CLUTs provide inflation protection for charities but create uncertainty in remainder planning.
For most Christian families, CLATs offer superior remainder value preservation and more predictable charitable payments, making them the preferred choice when funding with appreciating assets or business interests.
Significant Estate and Gift Tax Benefits
The tax advantages of CLTs can be extraordinary, particularly for families facing significant estate tax exposure. When you fund a CLT, you’re making a gift of the remainder interest to your heirs, not the full value of the assets contributed. The IRS calculates this remainder value using complex actuarial assumptions, often resulting in dramatic discounts.
Consider a practical example: Dr. Sarah funds a 20-year CLAT with $3 million in appreciated securities. The trust pays $180,000 annually to her church. Using current IRS rates, the remainder interest gift to her children might be valued at only $1.2 million for gift tax purposes, even though they’ll ultimately receive whatever assets remain after 20 years of payments.
If the trust assets grow at 8% annually while making the required charitable payments, her children could receive over $4 million after 20 years—all from a gift tax perspective of just $1.2 million. This leverage effect becomes even more powerful with appreciating assets or successful business interests.
The estate tax benefits are equally compelling. Assets contributed to a CLT, plus all future appreciation, are removed from your taxable estate. For families with estates exceeding the federal exemption ($13.61 million per person in 2024), this removal can save 40% in federal estate taxes, plus additional state estate taxes in many jurisdictions.
Funding Strategies: Maximizing Impact and Efficiency
The assets you choose to fund your CLT significantly impact both charitable payments and remainder value. Cash funding provides simplicity and predictability but may limit growth potential. Appreciated securities offer the advantage of avoiding immediate capital gains recognition while providing growth potential.
Business interests often represent the most powerful CLT funding strategy for practice owners and entrepreneurs. Consider Dr. Michael, who owns a thriving medical practice valued at $5 million. By contributing a 40% interest to a CLT, he can:
- Generate substantial annual payments to his church and favorite medical missions organization
- Remove the business interest and all future appreciation from his estate
- Potentially pass significantly more value to his children if the business grows faster than IRS assumptions
- Maintain control of the business through the majority interest he retains
The key is selecting assets likely to appreciate faster than the IRS’s assumed rate of return. This “spread” between actual performance and IRS assumptions creates the leverage that makes CLTs so powerful for wealth transfer.
Case Study: Medical Practice CLT Implementation
Dr. Jennifer, a successful orthopedic surgeon, established a $4 million CLT funded with 50% of her practice interests. The trust was structured to pay $240,000 annually to three Christian organizations: her church, a medical missions group, and a Christian medical school.
The 20-year trust term aligned with her retirement timeline, allowing her to see the full charitable impact during her lifetime. Using IRS valuation assumptions, the remainder interest gift to her two children was valued at only $1.6 million for gift tax purposes.
After 10 years, the practice had grown significantly, and the trust assets were worth $6.8 million. The consistent charitable payments had enabled her church to expand their community health program, the missions organization to establish a permanent clinic in Guatemala, and the medical school to provide scholarships for 40 students.
Most remarkably, projections showed her children would ultimately receive over $7 million from the trust—more than the original $4 million contribution—despite the substantial charitable payments. This outcome demonstrates how CLTs can literally multiply giving while preserving family wealth.
Choosing Christian Ministries as Lead Beneficiaries
Selecting charitable beneficiaries requires careful consideration of both ministry effectiveness and trust administration practicalities. The most effective CLTs typically benefit 2-4 organizations to balance impact with administrative simplicity.
Consider ministries with proven track records, strong financial management, and missions that align with your values. Churches, Christian schools, hospitals, and missions organizations all make excellent beneficiaries. Some families choose to split payments between local ministries (their church) and global outreach (missions organizations) to maximize kingdom impact.
It’s also wise to include provisions for beneficiary substitution in case circumstances change. A ministry might merge with another organization, shift its focus, or face financial difficulties over a 20-year period. Your attorney can draft flexibility provisions that allow beneficiary changes while maintaining the trust’s tax benefits.
Term Selection Strategies for Optimal Results
The trust term significantly impacts both charitable payments and remainder value. Longer terms increase total charitable giving but reduce remainder value to heirs. Shorter terms preserve more for family but limit charitable impact.
Most successful CLTs use 15-25 year terms that balance these competing interests. This timeframe allows substantial charitable impact while preserving meaningful remainder value. For older donors, shorter terms ensure they can witness the full charitable impact during their lifetimes.
Some families use “cascading” CLTs—establishing multiple trusts with staggered terms to create ongoing charitable payments while periodically distributing remainder interests to heirs. This strategy provides flexibility and helps manage changing family circumstances over time.
Income Tax Implications and Strategies
CLTs create unique income tax situations that require careful planning. Generally, the donor receives a charitable income tax deduction for the present value of the charitable payments when the trust is funded. However, this deduction is subject to annual limitations based on adjusted gross income.
For high-income professionals, the deduction might need to be carried forward over several years. Some CLTs are structured as “grantor trusts” where the donor continues to pay income taxes on trust earnings, effectively making an additional tax-free gift to the remainder beneficiaries.
The income tax benefits can be particularly valuable for practice owners experiencing high-income years. The large charitable deduction from CLT funding can offset significant ordinary income, providing immediate tax relief while establishing long-term charitable and wealth transfer benefits.
A Biblical Perspective on “God First” Giving
The CLT structure embodies biblical principles of stewardship and priority. By literally putting charitable giving first in the trust structure, you’re demonstrating faith in God’s provision while exercising wise stewardship of resources.
Malachi 3:10 challenges us to “bring the full tithe into the storehouse” and promises that God will “open the windows of heaven and pour down for you a blessing until there is no more need.” CLTs allow you to bring not just tithes but substantial offerings to God’s work while experiencing the blessing of seeing your family’s needs met through the remainder interest.
The strategy also reflects Jesus’s teaching in Luke 6:38: “Give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap.” Many CLT donors discover that their “sacrificial” giving actually results in greater wealth transfer to their children than they could have achieved through direct gifting.
Professional Team Coordination
Successful CLT implementation requires coordination among your financial advisor, estate planning attorney, CPA, and potentially a business valuator. Each professional brings essential expertise to the process.
Your estate planning attorney drafts the trust document and ensures compliance with complex tax regulations. Your CPA handles the income tax implications and ongoing trust tax returns. Your financial advisor helps select appropriate funding assets and manages trust investments for optimal performance.
For business interests, a qualified appraiser becomes essential for establishing defensible valuations that can withstand IRS scrutiny. The coordination of these professionals ensures your CLT achieves maximum charitable impact while preserving wealth for your family.
Implementation Timing and Market Considerations
Economic conditions significantly impact CLT effectiveness. Low interest rate environments (like much of the 2010s) created exceptionally favorable conditions for CLTs because IRS assumptions underestimated actual investment returns. Rising interest rates make CLTs less attractive but can still be effective with the right assets and structure.
Market volatility actually benefits CLATs funded with appreciating assets. If you fund a CLAT just before significant appreciation, all the growth above required charitable payments ultimately benefits your heirs. This timing advantage makes CLTs particularly attractive for business owners anticipating practice sales or significant growth.
Remainder Planning for Maximum Family Benefit
The remainder interest represents the “family legacy” portion of your CLT strategy. Many donors structure the remainder to benefit grandchildren rather than children, adding another generation of estate tax savings. Others divide the remainder among multiple family members to maximize gift tax exemption usage.
Consider establishing the remainder as a continued trust rather than outright distribution. This structure can provide ongoing asset protection, tax efficiency, and professional management for beneficiaries while preserving the wealth transfer benefits achieved through the CLT.
Overcoming Common Obstacles
The primary obstacle to CLT implementation is the perceived complexity and cost. While CLTs do require sophisticated planning and ongoing administration, the tax savings and charitable impact typically far exceed the costs for appropriate candidates.
Another common concern is the “irrevocable” nature of CLTs. Once established, you cannot change the charitable payments or reclaim the assets. However, this permanence is also a strength—it ensures consistent charitable support while providing certainty for remainder planning.
Measuring Success: Beyond Tax Savings
The true measure of CLT success extends beyond tax savings to include charitable impact and family legacy. Track the ministries you support and celebrate their accomplishments funded by your trust. Document your family’s philanthropic history and values for future generations.
Many families discover that CLTs create a culture of giving that extends far beyond the trust term. Children who witness their parents’ significant charitable commitments often become generous givers themselves, multiplying the strategy’s long-term impact.
Your Next Steps Toward Strategic Giving
Charitable lead trusts represent one of the most powerful tools available for Christian families seeking to honor God while building family wealth. The strategy requires careful planning, professional coordination, and long-term commitment, but the results can be transformational for both your favorite ministries and your family’s financial future.
The key is starting the conversation with qualified professionals who understand both the technical requirements and the spiritual motivations behind your giving strategy. With proper planning and implementation, your CLT can become a powerful testament to the principle that putting God first in our giving ultimately blesses all aspects of our lives.
Ready to explore how a charitable lead trust can amplify your kingdom impact while building family wealth? Contact me today to schedule a comprehensive consultation and discover how this sophisticated strategy can put God first in your giving while creating a lasting legacy for your family.
Section 2: Updates & Announcements
New Additions
My vision for Integritas is to continually add value with a high degree of integritas (integrity). Check below for new changes that reflect that.
- Trust & Will: Clients can now receive a will and trust as part of their estate planning package.
- Right Capital Updates: Right Capital continues to provide powerful updates to its financial planning offering allowing me to give clients more accurate tax and outcome projections.
- Announcement: Be on the lookout for more rollouts!
Daniel Heidel
Integritas Wealth Strategies, LLC
The information contained in this newsletter is purely for education purposes and should not be construed as financial advice. You should consult your tax advisor and attorney for any specific advice and recommendations relating to your situation.
