# Charitable Lead Trust: Definition and How It Works in California

> A charitable lead trust is an irrevocable trust that pays a charity for a set term, then passes what is left to family.

Source: https://ridleylawoffices.com/estate-planning-glossary-california/charitable-lead-trust/

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

A **charitable lead trust** is an irrevocable trust that pays a charity for a set term, then passes what is left to family. The charity receives either a fixed annuity (a charitable lead annuity trust, or CLAT) or a fixed percentage of the trust’s value each year (a CLUT).

## How it works in California

Ridley Law’s [guide to charitable lead annuity trusts](https://ridleylawoffices.com/charitable-lead-annuity-trust-clat/) covers the zeroed-out version and the GST traps. The gift tax deduction for the charity’s lead interest is allowed only if that interest is a guaranteed annuity or a fixed percentage of the trust’s value distributed yearly ([26 U.S.C. § 2522(c)(2)(B)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2522&num=0&edition=prelim)). The estate tax rule matches ([26 U.S.C. § 2055(e)(2)(B)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2055&num=0&edition=prelim)). The lead interest is valued with the section 7520 rate, so a lower rate makes the charity’s share worth more and the family’s taxable remainder smaller.

An income tax deduction up front is available only if the creator is treated as the trust’s owner under the grantor trust rules, a “grantor CLT,” and if that status ends early, the creator has to give back part of the deduction ([26 U.S.C. § 170(f)(2)(B)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section170&num=0&edition=prelim)). A nongrantor CLT is its own taxpayer, and California taxes its income if a trustee or a beneficiary whose interest isn’t contingent lives here ([Rev. & Tax. Code, § 17742(a)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17742)).

## Why it matters

A CLAT runs on the same math as a GRAT. If the trust’s assets earn more than the section 7520 rate, 5.6 percent for October 2026 ([Rev. Rul. 2026-19](https://www.irs.gov/pub/irs-drop/rr-26-19.pdf)), the excess passes to the family at the end of the term free of gift tax, after the charity has been paid in full. For a family that already gives a set amount to charity each year, the trust can fund that giving and move growth to the next generation in one structure.

## Common mistakes

Confusing it with a charitable remainder trust, which works the other way around. Choosing a grantor CLT for the deduction without planning to pay tax on all the trust’s income in later years, with no further deduction. And naming grandchildren as remainder beneficiaries of a CLAT without working through the generation-skipping tax rules.

## Related terms

- [Grantor Retained Annuity Trust (GRAT)](https://ridleylawoffices.com/estate-planning-glossary-california/grantor-retained-annuity-trust/): the noncharitable version, where the creator receives the annuity instead of a charity.
- [Section 7520 Rate](https://ridleylawoffices.com/estate-planning-glossary-california/section-7520-rate/): the rate that values the charity’s lead interest and the family’s remainder.
- [Charitable Remainder Trust](https://ridleylawoffices.com/estate-planning-glossary-california/charitable-remainder-trust/): the mirror image: family is paid first and charity takes the remainder.

Part of the [California estate planning glossary](https://ridleylawoffices.com/estate-planning-glossary-california/). For the full treatment, see [Charitable Lead Annuity Trust (CLAT): Zeroed-Out CLATs, GST Traps and California Rules](https://ridleylawoffices.com/charitable-lead-annuity-trust-clat/).