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| Charitable Lead Trust | |
| What is it? | A
Charitable Lead Trust provides for payments to a charity during
its term, and that distributes the trust assets at the end of the
term to family members or other beneficiaries.
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| When is it used? | Charitable
Lead Trust is most often used by donors with large estates who want
to minimize gift or estate tax and make a charitable gift, but also
preserve assets for family members. It is also used by owners of
family businesses or farms to enable the family to keep the family
business intact. It is a strategic way to transfer large blocks
of assets while leveraging taxable gifts.
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| How does it work? | A
donor transfers assets in trust to a trustee. The trustee invests
the assets of the trust during its term. 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 percentage of the value of the trust is paid 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 as 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 tax at the termination of the trust. Charitable Lead Trusts are not tax-exempt, but they receive a 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 donor advised fund, in which the donor has the right to recommend grants to his or her favorite charities. Or the fund can be a field of interest fund, a designated beneficiary fund, or an unrestricted community action fund. 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. |
| We're happy to help you find the charitable giving or estate planning option that works best for your situation. We can work directly with you or through your professional advisor. Call us today at (612) 672-3874 or e-mail us at development@mplsfoundation.org. |