Charitable Lead Trusts

Gary and Barbara had a successful business developing both residential and commercial real estate. They realized that their assets provided more income than they need for their family's current living expenses; however they wanted to maintain their assets to ensure their grandchildren would have resources for college educations. One of their first charitable gifts had been a gift of appreciated stock. They discussed their circumstances with their financial advisor who showed them how they could make a charitable gift now and be able to enjoy seeing the results while they were still here.

Gary: "It really has been a wonderful ride. When we first started developing residential housing, we had no idea where it would all lead. We were fortunate to make some choices that really set up the company for success. It's grown beyond our wildest dreams."

Barbara: "We have been able to provide a wonderful home for our children, but they are off on their own now with their own families. While the company has grown, our immediate needs have shrunk."

Gary: "Not too long ago, we sat down with our kids and our advisors and talked about what was important to us and what we really wanted. Our kids are all doing fine on their own. We certainly don't need more. Our attorney told us about something called a charitable lead trust funded with some of our excess assets."

Barbara: "It sounded great to us - some tax benefits and our estate remains intact for our grandchildren's educations. While we are helping to make a difference in other people's lives, we're able to do it while we're here and can be part of it. It really feels good to see firsthand how the income from the trust can really make a difference ."

Gary and Barbara wanted to contribute $250,000. They placed a sufficient amount of income producing commercial property into a Charitable Lead Trust (CLT) that would make annual payments of $25,000 over ten years. This will provide the charity with $250,000 in total and after ten years, the assets will pass to the donor's heirs. Because the gift tax deduction and the amount subject to gift tax is determined at the time the assets are contributed to the CLT, any appreciation of the assets that takes place during the term of the trust is not subject to additional gift or estate tax.

A charitable lead trust is often described as the opposite of a charitable remainder trust. It is a gift plan that enables you to transfer assets to your heir or heirs often at a reduced tax basis or cost and also make a gift to the charity you desire. A charitable lead trust is established by irrevocably transferring assets into the trust.

A trustee (either you or someone you name) invests the assets of the trust and pays annually a fixed percentage of the trust's value to the charity or charities named to benefit by the trust. The income received by the charity (ies) may be used for general purposes or for the purpose designated when you established the trust.

The trust is established for a fixed number of years. After the term of the trust has ended, the assets in the trust are distributed according to your wishes. Any increase in the value of the assets held by the trust would be distributed free of addidtional estate or gift tax to your beneficiaries.

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