How do charitable lead trusts differ from charitable remainder trusts in terms of income distribution?

How do charitable lead trusts differ from charitable remainder trusts in terms of income distribution?

• A. Charitable lead trusts pay income to charity first for a period, with remainder to non-charitable beneficiaries; charitable remainder trusts pay income to non-charitable beneficiaries for a period, with remainder to charity.
• B. Charitable lead trusts pay income to non-charitable beneficiaries first, remainder to charity; charitable remainder trusts pay income to charity first, with remainder to non-charitable beneficiaries.
• C. Both types pay income to charity only, with remainder to charity.
• D. Charitable lead trusts pay to charity for life, while remainder trusts pay to charity at death only.

Answer: (B)

The key idea is who receives the income first in each type of trust. In a charitable lead trust, the charity gets the income for a set period (or life), and after that lead period, the remaining assets go to non-charitable beneficiaries (often family). In a charitable remainder trust, the non-charitable beneficiaries receive the income for a set period (or life), and after that term, the remaining assets go to charity. So the correct description is the one that says charitable lead trusts provide income to charity first, with the remainder to non-charitable beneficiaries, while charitable remainder trusts provide income to non-charitable beneficiaries first, with the remainder to charity. The other arrangements mix up who gets paid first.

The key idea is who receives the income first in each type of trust. In a charitable lead trust, the charity gets the income for a set period (or life), and after that lead period, the remaining assets go to non-charitable beneficiaries (often family). In a charitable remainder trust, the non-charitable beneficiaries receive the income for a set period (or life), and after that term, the remaining assets go to charity.

So the correct description is the one that says charitable lead trusts provide income to charity first, with the remainder to non-charitable beneficiaries, while charitable remainder trusts provide income to non-charitable beneficiaries first, with the remainder to charity. The other arrangements mix up who gets paid first.