How does a Charitable Lead Trust work?
A Charitable Lead Trust is the reverse of other Charitable Remainder Trusts. With this trust, all income goes to SDS, then the remainder reverts to the heirs at the end of the trust’s term. Payments are made to the Foundation quarterly or annually, at your option. You also choose…
- The term of the trust from 10 to 20 years.
- The beneficiaries you want to receive the remainder principal.
- The size and how the annual payment to the Foundation is determined.
- Designated charitable recipients
A guaranteed annuity interest specifies that SDS annually receives a set amount or a stated percentage, based upon the trust’s value at its inception.
A Unitrust interest provides for a stated percentage payout annually, based upon the fair market value of the trust assets reassessed each year.
Who should consider a Charitable Lead Trust?
A Charitable Lead Trust is especially suited for wealthy individuals in high estate and gift tax brackets who desire to benefit SDS and still pass assets on to family members with little or no tax penalties.
Robert Heinze is in the uppermost income tax bracket 39.6%. His two children are currently 14 and 16 years old too young to manage a sizable inheritance. He and his wife desire to give a substantial gift to their ELCA Synod, but are hesitant to take assets away from their heirs. They would also enjoy seeing the benefits of their gifts at work for SDS during their lifetimes. Their accountant recommends a Charitable Lead Trust with SDS.
Mr. Heinze funds a Charitable Lead Trust with the Foundation with $500,000 cash, specifying his synod receive 8% a year during the trust’s 15-year term, with his children then receiving the trust principal.
- The Foundation receives $600,000 over the term of the Charitable Lead Trust.
- His children receive the full $500,000 principal at the end of the term, with NO estate taxes.
- Mr. Heinze receives an immediate charitable gift tax deduction of $342,380, reducing his taxable gift to his children from $500,000 to $157,620. Instead of the 55% estate taxes his family would incur on the entire amount, this reduced gift is instead taxed on the front end at much lower gift tax rates.
Example only. Actual data, income and tax deductions vary case by case. Your SDS consultant can answer any further questions you might have and develop specific illustrations for your personal estate planning needs and goals.
For a no-cost, no-obligation consultation in the privacy of your home, please complete the More Information form or call 1.916.678.6009