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A donor transfers assets in trust to a trustee. The trustee invests the assets and makes the payments to charity. The term of the trust can be a term of years up to 20 or the lifetimes of one or more individuals, or a combination of the two. Charitable Lead Trusts can also be created at the death of an individual through a will or revocable trust.
A charitable gift is made to a fund at The Minneapolis Foundation each year. Lead trusts can be set up as:
- Annuity Trusts - a percentage of the initial value is paid each year or
- Unitrusts - the trust is re-valued at the beginning of each year, and a percentage of the trust value is paid each year
When the lead trust term ends, the assets in the trust pass to children or other beneficiaries named by the donor.
In some cases, a lead trust is set up to make charitable gifts during its term and at the end of its term to return the assets to the original donor. In such a case, the donor receives charitable deduction for income tax rather than gift and estate tax purposes.
When a Charitable Lead Trust is created, the donor must file a gift tax return reporting the present value of the gift to family. Because it is a future interest, this gift is not eligible for annual exclusions.
The gift tax is calculated on the value of the assets when they are put into the trust less the present value of the stream of payments to charity.
Assuming that the trust is well managed and the value of the trust assets grows over time, the family can receive a gift that is much larger than the original value of the trust assets. This growth in the value of the trust assets passes to the family with no additional gift or estate tax at the termination of the trust.
Charitable Lead Trusts are not tax-exempt but they receive charitable deductions for charitable distributions, so the trust pays less income tax.
The annuity paid to The Minneapolis Foundation will be added to a fund created by the donor. This fund can be a:
Whatever the type of fund chosen, lead trust donors to The Minneapolis Foundation find satisfaction in knowing that they are giving generously to the community while providing for their own families.
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