MAKING GIFTS…WHILE PROVIDING FOR INHERITANCES

Making a Temporary Gift with a Charitable Lead Trust

What if there were a way to make a charitable gift using funds that would eventually be returned to you or your loved ones? Remarkably, such a plan actually exists. A charitable lead trust can be used to achieve a number of goals which, at first, might seem to conflict.

You can make a significant gift of income to fund ministries or other organizations that will begin immediately and continue for a period of time you determine at the time you fund your trust. Your gift can be part of a plan that helps assure future economic security for yourself and your loved ones. You may be able to provide your heirs with a larger inheritance than would otherwise be possible. You can reduce or eliminate income, estate, and gift taxes now and in future years as well.

Other plans discussed previously feature annual income paid to you and/or your spouse or another person or persons for life or other period of time. Under such plans, when income ceases, any remaining funds go to your donor advised fund at that time. Under a charitable lead trust, however, your donor advised fund receives its gift in the form of immediate payments from the trust for a period of time you determine. At the end of that time period, the assets used to fund the trust are returned to you or other loved ones you designate. In the meantime, there is a significant accumulation of funds in your donor advised fund that can be advised by you and/or your family to ministries and charitable organizations you choose.

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

For example: John and Judy Jones would like to eventually leave $500,000 to their children who are now teenagers. They have been told by their advisors that it would require a gift from their estates of as much as $1 million or more for the children to realize $500,000 after estate taxes of 55% or more that could be due. As an alternative to a bequest to their children, the John and Judy decide to fund a charitable lead trust with $500,000. The trust will make payments equal to 7.75% of the amount used to fund the trust, or $38,750, per year. John and Judy will owe no income tax on the earnings of the trust as they are received by their donor advised fund. The payment amount will be fixed and will not change over the term of the trust, which they decide to set at 22 years.

It was determined that they would use the income from the trust to make a significant contribution to their donor advised fund which they will use to benefit God’s kingdom and teach their children about stewardship. At the end of the 22-year period, after charitable gifts totaling $852,500 have been made to their donor advised fund, the Jones’ children will receive $500,000 or whatever other amount remains in the trust. Because of the charitable gifts made from the trust, little or no estate or gift tax will be due on the amount they receive. 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, the John and Judy have:

• Made a significant contribution to further God’s Kingdom and important work of worthy charitable organizations.

• Provided for a significant inheritance for their children at a time when they are mature adults.

• Eliminated all gift and estate taxes that would otherwise be due on the $500,000 amount originally placed in the trust along with the amount of any growth which should occur in the assets over time.

• Avoided taxes on the income from the property used to fund the trust that they would otherwise pay during the period the trust is in existence.

• Provided a way to teach their children about the importance of giving back.