Charitable Lead Trusts: Pros, Cons, How They Work

Charitable lead trusts help you donate to an organization while preserving the remaining inheritance for your heirs.

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Updated Dec 16, 2025 · 2 min read

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A charitable lead trust is a type of irrevocable trust that makes payments to a charitable organization for a set period of time and then transfers the remaining funds to other beneficiaries, such as family members . Charitable lead trusts, when set up correctly, can help reduce income tax, estate tax or gift tax for estates or their beneficiaries while providing a way to donate some of the estate to an organization the estate owner cares about.

This type of trust is essentially the opposite of a charitable remainder trust, which provides income to beneficiaries during your lifetime or theirs, with the remainder going to charity .

» Estate planning? Start with our 7-step guide.

How a charitable lead trust works

A charitable lead trust is known as a “split interest” trust because it is used to make charitable contributions and pass wealth to noncharitable beneficiaries. Here are the key steps.

1. Fund the trust

The grantor (creator) funds the trust with assets that can include cash, real estate, publicly traded securities, some types of closely held stock or other assets.

The tax consequences of moving assets into a trust can vary depending on the type of asset. Over time the trust may need to sell some of the assets so it has enough liquid funds to make charity payments .

Unlike charitable remainder trusts, investment income generated by assets in a charitable lead trust is not tax exempt. Either the grantor or the trust may owe taxes when the trust sells assets.

2. Make payments to a charity

The charity is called the lead beneficiary. There is no minimum or maximum distribution required, as long as payments are made at least annually. Payments can either be set up as annuities (a specific, fixed amount goes to charity each year) or unitrust (a percentage of the total trust fund goes to charity each year).

The trust is set to a “fixed term,” which is a set amount of time during which the trust makes payments to a charity. The term can be a number of years, or it can be the lifetime of the grantor or their beneficiaries. Charitable lead trusts don’t have a mandatory time limit.

3. Distribute remainder to beneficiaries

The remaining funds go to noncharitable beneficiaries (called remainder beneficiaries) when the term ends.

🤓 Nerdy Tip

A charitable leadtrust can be set up so that the grantor receives the remainder — this would be called a reversionary trust. If the funds go to other beneficiaries, it’s called nonreversionary.

Pros and cons of a charitable lead trust

Pros

Can provide a charitable tax deduction for the value of the assets you put in the trust.

Can reduce estate taxes.

Can reduce gift taxes.

Cons

Investment income and capital gains within the trust are taxable.

Can’t change the terms or beneficiaries once the trust is set up.

Can be complex to set up correctly.

Types of charitable lead trusts

You can set up either a grantor charitable lead trust or a nongrantor charitable lead trust. The type you choose can affect the tax features of the trust .

	Advantages	Drawbacks
Grantor Charitable Lead Trust	The grantor controls the trust and can claim a charitable deduction on their current income tax return for the value of the future payments to the charity. Generally, you can deduct up to 30% of your adjusted gross income. The limit is 20% in some instances, depending on the type of asset or charitable organization.	The grantor must pay income taxes on any investment income the trust earns during its term.
Nongrantor Charitable Lead Trust	The trust pays taxes on the assets, not the grantor. It can claim an unlimited charitable tax deduction. The grantor’s estate can claim a charitable tax deduction.	The grantor can’t take the initial income tax deduction for the current value of the future charity payments. Grantors may have to pay gift taxes, depending on the amount of the remainder going to beneficiaries.

» Learn more about estate tax planning

Charitable lead trust vs. donor-advised fund (DAF)

Charitable lead trusts and donor-advised funds (DAFs) are two ways to donate to charitable organizations over time. Both can also reduce your estate taxes (if your estate is large enough to be subject to estate tax).

The main difference between charitable lead trusts and donor-advised funds is the flexibility to change the charity you want to donate to.

Charitable lead trusts are irrevocable trusts, so it can be difficult or impossible to change the recipient once the trust is in motion.
A DAF is managed by a sponsoring organization, but you generally can recommend which charities should get the money you put in the account.

🤓 Nerdy Tip

You might be able to use a charitable lead trust and a DAF together to maximize your flexibility and tax savings. First, you set up a charitable lead trust, then name an organization that sponsors DAFs as the lead beneficiary. Next, you recommend charities to the DAF sponsor. In that scenario, you may be able to pass the remainder to your personal beneficiaries.

» Learn more: Rules for tax-deductible charitable donations

Frequently Asked Questions

How do I set up a charitable lead trust?

Charitable lead trusts are fairly complex and have a variety of tax benefits or consequences, depending on their structure. It’s best to work with an estate planning attorney or tax professional to set up a charitable lead trust correctly.

Article sources

NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines.

1. Cornell Law School. Charitable lead trust. Accessed Jun 17, 2025.
2. Cornell Law School. Charitable remainder trust. Accessed Jun 17, 2025.
3. Fidelity Charitable. Charitable lead trusts. Accessed Jun 17, 2025.
4. IRS.gov. Charitable contributions. Accessed Jun 17, 2025.

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