Everything you always wanted to know about charitable lead trusts but were afraid to ask.

By Kathleen Stephenson and Lisa B. Petkun

A CLAT pays a set annuity to the charity during the trust term. The trust can stipulate that income earned in excess of the annuity should be paid to the charity. However, the value of the charitable deduction will be limited to the value of the annuity interest.

A CLUT pays a specified percentage annually based on the fair market value of the trust principal. With a CLAT, the amount passing to the charity each year doesn’t change. With a CLUT, the amount will change depending on the investment performance of the trust assets.