The Charitable Lead Trust
Enjoy Tax Benefits of a Charitable Gift
Without Forfeiting Assets
Suppose you would like to give United Cancer Research Society an income from certain assets for a number of years. Then you want the principal to be given to your family--or returned to you.
In a nutshell, that describes a chaitable lead trust. You will enjoy valuzble tax benefits without for feiting the trust principal. Even more importantly, you will gain the personal satisfaction of supporting our pressing needs during the coming years.
You Can Choose What is Best for You
You can have a lead trust set up after your lifetime, but it is more useful if you create
it now. There are two types of lead trusts.
Guaranteed annuity interest. Under this plan, the trust pays us a fixed dollar amount annually for the term of the trust. You determine the amount at the outset. The trust can last for the number of years you specify or for the life of one or more individuals you name.
Unitrust interest. In this variation the trust pays us an amount each year determined by multiplying the fair market value of the trust assets by a specific percentage, which is established at the start. The amount is computed anew annually, using the current valuation of the assets. Here again, the term of the trust can be limited either by number of years or by certain lives.
How a Lead Trust Can Fit Your Needs
If you have a substantial estate and you anticipate high federal gift and
estate taxes, the lead trust was meant for you. The trust property can be passed down to
your children, grandchildren, and others either entirely free of or at greatly decreased
gift and estate taxes.
Example: Alan establishes a lead trust paying a guaranteed annuity interest of 7% to a United Cancer Research Society for 15 years. After that his children will receive the remaining principal. A large portion of the amount used to fund the trust (the exact amount depends on several factors) qualifies for a gift tax charitable deduction and can significantly offset the gift tax on his family's remainder interest.
There are other combinations of trust payments and terms that completely bypass both gift and estate taxes. According to tax rules, the gift to your family is the actuarial value of their right to the trust assets when the trust ends. The larger the annual payouts and the longer the term of years, the smaller the tax exposure. (Consult your tax advisor about the generation-skipping tax on transfers over certain large amounts to grandchildren and others more than one generation younger than you.)
You can also establish a lead trust that returns the trust assets to you after a number of years. You will be entitled to an income tax charitable deduction for the payments to United Cancer Research Society, but you will be taxed on the income you do not receive--unless you fund the trust with tax-exempt securities. Tjhe value of the trust assets will be included in your gross estate for federal estate tax purposes.
Count the Benefits
A lead trust offers you a good way to carry out your philanthropic plans over the coming
years using monies that might be expended largely on taxes. Plus, you keep ultimate
control of the trust assets within the family.
Should you create a charitable lead trust? Before answsering that question, you will want to review your financial, tax, and family circumstances with your advisors. Ask our representative to help.
