Charitable Lead Trusts
A charitable lead trust enables a donor to make a gift to both Sarah Lawrence and to his or her heirs. It is created for a designated period of time, with annual payments being directed to the College. At the end of the trust period, the principal, along with any increase in the value of the assets, is distributed to the donor's beneficiaries generally free of gift and estate taxes. Donors can choose the size of the trust, its length and the amount they wish Sarah Lawrence to receive. The amount needed to establish a charitable lead trust is generally $1,000,000, though they can be created with lesser amounts. Charitable lead trusts may also be set up where assets are returned to the donor at the end of the trust term; however, this option is often less desirable from a tax standpoint.
A charitable lead trust can be used to achieve a number of goals:
- Make a significant gift to Sarah Lawrence during one's lifetime
- Provide heirs with a larger inheritance than might otherwise be possible
- Reduce or eliminate estate and/or gift taxes
Mrs. Holland, age 77, would like to transfer assets to her son, age 45, and at the same time endow a faculty fellowship at Sarah Lawrence. She places $1,000,000 in a 7.5% lead trust that pays $75,000 to the College for twenty years. After that time, the trust’s principal plus any appreciation will be distributed to her son free of taxes as he approaches retirement. She also receives a gift tax deduction of $785,470, leaving a taxable portion of principal of $214,530 which may be offset against her unified tax credit.
*Based on IRS discount rate of 2%