webmaster paris

Legacy Gifts & Gift Planning - Charitable Lead Trust

E-mail Print PDF

What Is a Charitable Lead Trust?


Legacy Gifts and Gift Planning

If you have a large estate and are looking for ways to pass more on to your heirs, a Charitable Lead Trust may be an excellent plan for you. A Charitable Lead Trust is a gift plan that allows you to transfer assets to future generations at a significantly reduced gift or estate tax cost, while providing a stream of income to SFFFK for a term of years. The technical name for this type of Charitable Lead Trust is a "Non-Grantor Charitable Lead Annuity Trust" as it leads with a stream of fixed annual payments to SFFFK before the assets revert to non-charitable beneficiaries other than the grantor.

Did you know there is a way to make a charitable gift using funds that will eventually be returned to you or your loved ones? Remarkably, such a plan exists. A charitable lead trust can be used to achieve what might at first seem to be conflicting goals. Consider the benefits of a charitable lead trust:

 

    • You can make a significant gift of income to help SFFFK preserve and restore the ecosystems of the Florida Keys National Marine Sanctuary that will begin immediately and continue for as long as you wish.
    • Such a gift can serve to reduce or eliminate income, estate, and gift taxes now and in future years as well.
    • A charitable lead trust can be a great way to fulfill a multi-year pledge.
    • Your gift can be part of a plan that helps assure future economic security for you and your loved ones.
    • You may be able to provide your heirs with a larger inheritance than would otherwise be possible.



There are other gift plans that feature annual income for you or others you choose. Under such plans, when income ceases, any remaining funds are transferred to SFFFK. Under the terms of a charitable lead trust, however, SFFFK receives a gift in the form of payments from the trust that begin immediately and last for a period of time you determine. At the end of that time period, assets remaining in the trust are returned to you or others you designate. One result can be to provide an inheritance for loved ones at little or no after-tax cost.

As you can see, the charitable lead trust can be an especially attractive way to meet multiple personal and charitable planning goals.

Example: Jack and Annie would like to eventually leave $500,000 to their teenage children. They have been told by their advisors that they will have to leave a much larger amount to their children for them to realize $500,000 after estate taxes. As an alternative to leaving a gift at their death to their children, Jack and Annie decide to fund a charitable lead trust for the benefit of SFFFK with $500,000. The trust will make payments to SFFFK each year equal to 5% of the amount used to fund the trust, or $25,000. They will not owe income tax on the earnings of the trust as they are received by SFFFK. The payment amount will be fixed and will not change over the term of the trust, which they decide will be 20 years.

At the end of the 20-year period, after charitable gifts totaling $500,000 have been made, Jack and Annie's children will receive $500,000 or whatever other amount remains in the trust. Because of the charitable gifts to be made from the trust over time, little or no estate or gift tax will be due on the amount placed in the trust. If the assets in the trust grow in value during the term of the trust, the children will also receive any amount over $500,000 free of gift and estate taxes at a time in life when they may be more responsible and have greater need.

To summarize, Jack and Annie have:
    • Made a wonderful gift to immediately fund the important work of SFFFK.
    • Provided for a significant inheritance for their children at a time when they have reached maturity.
    • Greatly reduced or eliminated gift and estate taxes that would otherwise be due on the $500,000 originally placed in the trust, along with the amount of any growth that occurs in the assets over time.
    • Avoided taxes on the income from the property used to fund the trust that they would have otherwise paid during the period the trust is in existence.



Replacing Gifts with Life Insurance

Life insurance can be used in many ways to help you make charitable gifts more effectively. One example is the use of life insurance to "replace" your estate funds that have been devoted to charitable use. The life insurance proceeds thus serve to provide an inheritance for heirs that might not otherwise be available.

For example, you might use the tax savings and all or a portion of the income generated by a charitable remainder trust or other gift plan to purchase life insurance benefiting your heirs. That way, SFFFK receives the gift you intend, while your heirs enjoy their inheritance – often at little cost to you or your heirs. Check with your life insurance professional or other advisors for additional information regarding this option. For additional information contact us through our online form.




The information on this site is for educational purposes only and is not intended as legal, tax or investment advice. If you are considering a planned gift to the Sanctuary Friends Foundation of the Florida Keys, we highly recommend you consult with your own tax and legal advisors to determine the best options for you.