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Charitable Lead Trusts
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You’re considering a gift in partnership with the Associate Alumnae of Douglass College > Your planning objective is estate preservation > You want to reduce gift and estate taxes rather than income tax |
A lead trust holds appreciating assets, pays income to the Associate Alumnae of Douglass College for a period of years, and then passes the remaining principal back to you – the version known as a grantor lead trust – or to beneficiaries you have selected – the non-grantor lead trust. The non-grantor lead trust offers you more significant tax benefits.
The non-grantor lead trust reduces the cost of passing property to your heirs in two ways. First, the value, for estate and gift tax purposes, of the assets you place in your lead trust will be reduced by the present value of the income that the trust will direct to the Associate Alumnae of Douglass College. Second, the taxable value of the lead trust’s assets is fixed at the time you establish the trust – any subsequent increase in the value of the assets will pass to your heirs outside your estate and thus be free of estate or gift tax.
This combined reduction in the taxable value of the assets means your family can often receive more from an estate plan containing a non-grantor lead trust than they could from an outright bequest from you.
The lead trust also offers you these additional features:
- It can be funded with shares in a growing family business, thus lowering the tax cost of passing ownership on to the next generation .
- The income earned by a non-grantor lead trust while it is in operation is not taxable to you.
- The trust can run for a term of years or for your lifetime.
- The lead trust is the only income-gift that delivers immediate benefits to the Associate Alumnae of Douglass College.
- The longer the lead trust pays the Associate Alumnae of Douglass College income, and the more income it pays us, the larger your estate and gift tax deduction will be.
- You, an advisor, or a financial institution can serve as trustee of your lead trust.
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Example Your family business is on a growth track, and your daughters are learning the ropes fast. Your planning priority is to keep the enterprise that you worked so hard to establish intact for them to inherit and enjoy. As your gift to the AADC, you place $500,000 worth of your company's stock in a non-grantor lead trust. The trust will pay the Associate Alumnae of Douglass College a 6 percent annuity for 20 years, either in dividends or in additional shares of stock. You estimate that the stock will grow at an average 9 percent total return during the term of the trust. You have already given your daughters the maximum that may be transferred free of gift and estate tax. Here are the benefits to you and your family of the lead trust, compared with those of a direct bequest to the children and no gift to us: |
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Comparison |
Lead Trust |
No Gift |
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Principal |
$500,000 |
$500,000 |
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Annuity to Douglass |
$30,000/year |
-0- |
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Present value of 20 years’ annuity |
$312,940 |
-0- |
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Gift Tax (paid by donor in 2003 from other assets) |
$41,637 |
-0- |
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Value of assets in 2023 |
$1,267,402 |
$2,109,719 |
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Estate Tax on assets, 2023 |
-0- |
-$1,033,762 |
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Net distribution to family |
$1,267,402 |
$1,075,957 |
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Total gift to the AADC |
$600,000 |
-0- |
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Note: This calculation is based on a factor that changes monthly. For the most current figures, contact us or go the Gift Calculator to see the benefits this gift would provide you today. |
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How Do I Create a Charitable Lead Trust?
Consult with an attorney specializing in charitable trusts and estate planning. To save you time and expense, we can provide an initial draft of the lead trust agreement for review by you and your attorney. Once your trust agreement is signed, you can "fund" your lead trust by transferring assets to your trustee.
Email us, complete the personal illustration form, or call us at 732-246-1600 so that we can assist you through the process.
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