A charitable lead trust is a useful tool for those people who want to pass property on to family members at the lowest possible gift tax and estate tax cost and who, at the same time, want to make a gift to a charitable institution.

The lead trust may also be known as a "front end trust". In this trust a charitable institution receives income from the trust "up front." After a specified number of years, the trust reverts back to the donor or other persons named in the trust.

A charitable lead trust helps pass assets on to family members, reduces gift and estate taxes, and provides for your favorite charitable institution.

In creating a charitable lead trust the donor creates the trust and names the trustee. The donor then transfers property into the trust, naming the charitable organization which will receive income from the trust. It is for the donor to determine the length of the trust and to name the individuals who will receive the proceeds from the trust upon its termination.

Although there are numerous forms or variations of the charitable lead trust, the payout arrangements must conform to either the annuity trust or the unitrust format. For example, the charitable lead annuity trust requires that the payment be the same dollar amount each year. However, when the trust is established, the annual payment, established through a percentage, can be less than 5%.

The charitable lead unitrust requires a percent determination, which must be 5% or more. This percent is applied to the trust as it is revalued each year. The payout can vary, although the percent remains the same.