How Can I Benefit from a Charitable Lead Trust?

Charitable lead trusts are designed for people who would like to benefit a charity now rather than later. You may have heard about some charitable trust strategies before but decided against them because you wanted to make an immediate gift to charity.

With a charitable lead trust, your gift can have an immediate impact, and you’ll be entitled to other benefits as well. These trusts may enable you to take advantage of tax benefits and still make a significant gift.

If you are accustomed to making outright contributions to your favorite charity, or if you typically sell an investment and give all or a portion of the money to charity, you may be attracted to the special advantages of using a charitable trust.

You can get an immediate charitable income tax deduction based on the “life expectancy” of your gift. With a charitable lead trust, you are giving the charity the income from the asset and not the asset itself. Your deduction will be based on the rate of return the charity can expect to receive, the duration of the trust, and the IRS tables used in the calculation. Your write-off will be limited to a portion of adjusted gross income but can be carried forward to future years.

With a charitable lead trust, all or a portion of the income from the reinvested assets will then go to the charity. The charity will receive distributions for the duration of the trust. You may specify a set number of years or the life of you or someone else. At the end of this period, the asset would revert back to you or your family, for example.

A charitable lead trust may also help reduce family squabbles over inheritance. If you were to actually gift the asset to the charity upon your death, your heirs may feel somewhat cheated. By giving income to the charity during your lifetime and having the asset revert back to your family upon your death, you may avoid much of this potential controversy.

If you are interested in increasing your gift to a charity and your tax benefits during your lifetime, a charitable lead trust may enable you to accomplish your goals.

By taking the time to plan your charitable gifts, you may be able to take advantage of some special tax benefits and make charitable giving a real win-win situation.

Keep in mind, however, that you should seek professional advice from an attorney before establishing such a complex trust.

This material was written and prepared by Emerald Publications.
© 2006 Emerald Publications

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, numerous changes to the federal estate and gift taxes are scheduled to take effect between 2002 and 2010. These include repeal of the estate tax for the year 2010 although gift taxes on lifetime transfers would continue in effect. Current (meaning year 2001) estate and gift tax law would be reinstated for year 2011 and thereafter. Therefore, the Act provides several years of lower taxes and higher exemptions followed by one year of repeal for 2010. You should consult your tax advisor regarding the possible application of this recent legistlation to your situation before implementing any estate and gift tax planning techniques.

EC21889 (11/01)