Gift Plan Details: Charitable Lead Tursts

A charitable lead trust is an individually managed trust that holds gift assets, pays income to your organization for a period, and then returns its remaining balance to the donor or to the donor's heirs. 

A lead trust delivers a steady stream of income to your organization.  For donors, a lead trust offers the choice of two different benefits:

• If the lead trust is structured to return its remaining balance to the donor after it has paid income to your organization, it is called a grantor lead trust. The donor receives an upfront deduction based on the present value of your total income payments. The trust's annual earnings (minus the distributions to you) will be taxable to the donor, but by adjusting the amount and duration of the charitable payments, the upfront deduction can offset this subsequent tax. A grantor lead trust can be an attractive strategy for donors who maximize their current tax deduction but don't want to part permanently with a valuable asset.
• If the lead trust pays its remainder to the donor's children or other heirs, it is called a non-grantor lead trust, and it can be a very effective way to reduce the tax cost of passing assets within a family. First, the estate- and gift-tax value of assets placed in the non-grantor lead trust will be reduced by the present value of your total income payments. Second, the taxable value of the assets in the lead trust is fixed as of the time the trust was established - any subsequent appreciation will pass to your heirs free of estate and gift tax. A non-grantor lead trust is particularly effective in sheltering the cost of passing ownership of a growing family business on to the next generation.

(Our handy Planned Giving Pocket Guide describes all planned gifts.)