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Helen Hayes' friends and colleagues will always remember her life. At her special request, her 80th birthday party was held at The Actors Fund Nursing Home and Assisted Living Care Facility in Englewood, New Jersey. She decided to hold her party there, because she wanted to spend her birthday "with her friends," not at a huge, impersonal celebration in the company of thousands of strangers. In fact, the residents at the Homes truly were her friends. The Helen Hayes Rose Garden, created to honor her on that occasion, still provides beauty and tranquility for those who live or visit there.

Shortly after her death in 1993, The Fund received notice from Helen's devoted son, James MacArthur, that she included The Fund in her estate plan, along with Covenant House and Friends of Our Little Brothers. Helen wanted to support these organizations, and, at the same time, leave an inheritance to her son and three grandchildren, Mary, Charles and James D. MacArthur. By using a Charitable Lead Trust, she was able to accomplish all of her goals. This plan has proven to be so successful, that her son, James, has decided to utilize a Lead Trust in his own estate plan. Clearly, James MacArthur inherited his mother's talent, along with her charitable nature.

How Can You Protect Your Wealth for Future Generations?
Did you know that estate and gift taxes could consume 60% to 80% of your sizable estate, reducing the inheritance for your children or grandchildren by a heartbreaking amount? Did you know that the majority of your hard-earned assets could go to the government instead of to your loved ones? With advance planning, you can avoid this scenario by putting your assets into charitable lead trusts. This unique method of estate planning allows you to make a significant philanthropic gift to a worthy charity, while protecting your assets for your heirs.

Who Should Consider Charitable Lead Trusts and Why?
If you have a sizable estate, the charitable lead trust may be the best way for you to protect and preserve it for your children and grandchildren. If you are familiar with the charitable remainder trust, you know that it takes care of specified loved ones first, leaving the remainder to charity. However, a charitable lead trust takes care of the charity first, with the trust principal eventually going to your designated heirs. The lead trust is especially beneficial if you are in a high gift or estate tax bracket. Thus, it can:

• Protect your property for heirs
• Save gift tax
• Save estate tax
• Save inheritance tax
• Save generation-skipping transfer tax
• Provide a major philanthropic gift

Are There Different Types of Charitable Lead Trusts?
There are two types of charitable lead trusts: the charitable lead unitrust and the charitable lead annuity trust. Regardless of the type, you create the lead trust by making an irrevocable transfer of funds for the benefit of a charitable organization for either a lifetime or specified term of years.

Charitable Lead Unitrust
When you establish a charitable lead unitrust, you decide what percentage of the trust's assets fair market value you wish the charitable organization to receive. For example, you may decide that 6% of the trust's value will be paid to the charitable organization. Because it is a unitrust, the amount paid out is based upon the trust's annual reevaluation, which can vary from year to year.

For example, Mrs. Phillips set up a 25-year charitable lead unitrust with a $3 million gift. She wanted 6% of the trust paid out to a specified charity. The charity received $180,000 during the first year. In the second year, the trust had been valued at $3,150,000, increasing the charitable payout to $189,000. At the end of 25 years, Mrs. Phillips' grandson received the trust principal, which had grown in value over the years. She had carefully structured her charitable contribution, and the term of years to protect him from paying either estate or gift taxes.

Charitable Lead Annuity Trust
As with other types of annuity trusts, the charitable lead annuity trust pays a guaranteed fixed dollar amount. You can either decide on a dollar amount or a percentage of the initial trust value. Either way, the payout to charity will remain the same for the entire term of the trust, regardless of how the trust performs. For example, Mr. Lawson set up a 20-year charitable lead annuity trust with $5 million. He wanted 7% of the initial trust value, or $350,000, to be paid out yearly as a philanthropic gift. The annual payout to charity remained constant, and at the end of 20 years, Mr. Lawson's son received the body of the trust, which had increased in value since it was funded. Like Mrs. Phillips, Mr. Lawson created his trust to be free of estate and gift taxes.

What if You Need a Charitable Gift Tax Deduction?
Charitable lead trusts are important tools to help save estate and gift taxes. However, you may need to receive a current charitable gift tax deduction. A grantor lead trust makes this possible. In a granter lead trust, the assets contributed to the trust are returned to you, rather than to another person, when the trust term has ended. Charles Cronse currently earns a high income. He wants to make a charitable contribution, but believes his income will be lower in the future. Due to his current high tax bracket, a charitable income tax deduction is as important to Charles as preserving funds for his future use. Charles created a grantor lead trust and received a current income tax charitable deduction for the value of the income that was distributed to charity. He took a deduction of 30% of his adjusted gross income in the year the assets were transferred to the trust, carrying over any excess for five years. At the end of the trust term, the trust principal and its accumulated earnings were returned to him.

What Are the Advantages of a Grantor Lead Trust?

• Obtain current charitable income tax deduction
• Make a generous gift without permanently releasing title to property
• Receive principal and accumulated growth after a term of years

The grantor lead trust is also beneficial if your charitable deductions exceed the allowed percentage of adjusted gross income. By transferring this gift to a charitable organization, neither the contributor nor the organization is taxed.

Although the grantor lead trust receives a current income tax charitable deduction, the income paid to the charitable organization is taxed to the grantor each year. If you anticipate changing to a lower tax bracket in the near future, such as following retirement, this can be an advantageous way to make a gift.

An even more attractive alternative is to fund the grantor lead trust with tax-exempt bends. This provides a current income tax charitable deduction, and you owe no tax on the tax-free income paid to the charitable organization.

Testamentary Lead Trust
Creating a charitable lead trust by will allows you to avoid some or all estate taxes, when making a gift to family members. Again, the estate and gift tax deductions are based upon the term of years and the payout to the charitable organization. We will be happy to help you make that determination.

The treatment of cost basis differs between a testamentary lead trust and a lifetime trust. In a lifetime trust, your family members receive your cost basis in the trust property. With a testamentary trust, they receive a stepped-up basis (the value of the property at your death). This can ease the capital gains tax bite, if they later decide to sell the assets in the trust.

The Joy of a Wise Gift
There are many ways for you to make a charitable gift. Choose the method that best meets your needs and the needs of your loved ones.

The next page introduces the Pooled Income Fund and Mr. and Mrs. Dick Charles.

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