Give Now, Transfer Wealth Later

A charitable lead trust allows you to provide generous, immediate support to charity_name for a period of years, after which the remaining assets are transferred to your family—often with significantly reduced gift and estate taxes. It is an excellent way to pass wealth to the next generation while making a difference today.

A charitable lead annuity trust may be right for you if:

  • You have assets that you do not need currently for your own financial security.
  • You want to make a difference at charity_nickname today.
  • You eventually want to pass significant assets to your children or other heirs.
  • You want to minimize gift taxes, estate taxes, and probate costs.

How It Works

  • You fund the trust: You transfer assets (such as cash, securities, or income-producing property) into an irrevocable trust.
  • Charity takes the “lead”: The trust makes fixed annual payments to charity_name for a set number of years (often 10 to 20 years).
  • Your family receives the rest: When the trust term ends, all remaining principal is distributed to your heirs. Because charity_name received the income first, the IRS heavily discounts the tax value of the gift to your family, potentially saving them a fortune in taxes.
     
 

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Separate Trust

A charitable lead annuity trust is a separate taxable trust governed by an irrevocable trust agreement. You choose the trustee who is responsible for administering your lead trust and guiding the investment of its assets.

Irrevocable Gift

A charitable lead annuity trust is an irrevocable arrangement. Once you transfer assets to create the trust, you cannot change your mind and get the assets back. This requirement assures that all of the payments promised in the trust agreement will go to support charity_nickname.

Make Fixed Payments to charity_nickname Each Year

Your lead annuity trust makes payments to charity_nickname each year of a fixed amount for as long as the trust lasts. Your lead trust can make payments to more than one charity, if you wish.

You Choose the Payment Amount

You choose the amount that your lead annuity trust must distribute to charity_name each year. Lead trust donors typically select a payment amount that is likely to preserve a substantial remainder for family or other heirs. Payments are usually made in annual installments, but semiannual or quarterly installments are possible.

Remaining Assets to Heirs

When your charitable lead annuity trust ends, all remaining principal in the trust will be transferred to the family members or other heirs you choose.

How Long can my Lead Trust Last?

While most lead annuity trusts last for a specified term of 10-20 years, other terms are possible. Your lead annuity trust can last for one or more lives or for a specific length of time, or for a combination of lives and years. The term length you choose will depend on when you want your heirs to receive their trust distribution and the size of the gift or estate tax charitable deduction you want the trust to generate, as well as other factors.

Tax Benefits

Unlike other charitable trusts, the charitable lead annuity trust generates a gift or estate tax charitable deduction, not an income tax charitable deduction.

  • Reduce or eliminate gift or estate tax on gift to heirs if your estate exceeds the then applicable estate tax credit.
  • Avoid all gift and estate tax on asset growth.

When you transfer assets to your lead annuity trust, you make a taxable gift to the individuals who will receive your trusts principal when it ends. However, your gift of payments to charity_nickname earns you a gift or estate tax charitable deduction in the year of your gift that will reduce, and in some cases, eliminate, your taxable gift if your estate exceeds the then applicable estate tax credit.

Some lead annuity trust donors make a point of picking a term length and payout rate that reduces their taxable gift to zero. Doing so eliminates any possibility that they will have to pay gift or estate tax on their gift.

In addition, the assets in your lead annuity trust are removed from your taxable estate. This means that any growth in the value of your trusts assets during its term can be passed on to your heirs completely free of gift and estate taxes.

Suitable Funding Assets

You can fund your lead annuity trust with many different kinds of assets. All of the following assets can work well:

  • cash
  • securities
  • a closely-held business
  • commercial property
  • a combination of these assets

Assets that are likely to increase substantially in value over time can be especially attractive candidates for transfer into a lead trust.

Example

Don Feaster spent his career building a successful manufacturing business, which he sold a few years ago. He and his wife, Ann, want to accomplish two things: make a transformational gift to charity_name and leave a significant inheritance to their three adult children. Working with his advisors, Don funds  a $2,000,000 lead annuity trust that will pay $130,000 to charity_nickname each year for 20 years.

Benefits

  • The Feasters' three children will split approximately $2,409,955* when the trust ends.
  • The Feasters will earn a gift tax charitable deduction of $1,467,180** which can reduce taxes on the gift to their children.
  • The assets used to fund the trust will not be taxable in their estate.
  • charity_nickname will receive $2,600,000 from the trust over 20 years.

*Assumes the trust assets earn a 7% annual net return.
**The Feasters' estate or gift tax charitable deduction may vary depending on the timing of their gift.