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The Citadel
171 Moultrie St.
Charleston, SC
29409
843.953.5297
800.233.1842
Fax: 843.953.7689

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Charitable Lead Trust
A charitable lead trust may be thought of as the mirror-image of the charitable remainder trust. The initial or "lead" interest is for the benefit of The Citadel. You may transfer assets to a charitable lead trust which distributes its income to The Citadel Foundation for a term of years. At the end of the trust term, the trust distributes the trust assets to designated non-charitable beneficiaries, usually your children or grandchildren (or trusts for their benefit). By establishing a charitable lead trust, the donor is, in effect, "lending" the assets to The Citadel Foundation for the term of the trust. The benefits of this gift arrangement are primarily the reduction or elimination of the transfer taxes (estate and/or gift taxes) imposed on the transfer of assets to children or others at the end of the trust, and the ability to make a current gift to benefit The Citadel without immediately giving away the underlying property.

Example: Mr. Smith contributes $1,000,000 to a 20-year charitable lead annuity trust to benefit The Citadel. The trust agreement stipulates that TCF is to receive $70,000 in income annually for the purposes spelled out in the trust agreement. At the end of the 20-year term, Mr. Smith's son, Trey, is designated to receive the trust principal. For gift tax purposes, only the projected value of the trust principal at the end of the trust period is subject to tax. Treasury tables project the value of Trey's remainder interest to be $170,367. If the trust earns an average compound interest rating return of 9.5% and distributes 7% to TCF, the trust would grow to approximately $2,350,000 at the end of 20 years.

The difference between the value of the remainder interest under the Treasury tables and what is actually the trust value at the end of the trust term passes to Trey, completely free of transfer taxes. Mr. Smith's tax liability is based only on the projected value of the remainder interest ($170,367), and even this could be offset by Mr. Smith's available estate and gift tax unified credit.

The charitable lead trust can be a very powerful tool in gift and estate tax planning, but its complexity requires careful consideration of the technical requirements of this form of gift.

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Life Income Gifts Charitable Lead Trust Real Estate
Charitable Remainder Trust Retirement Plans Planned Giving Home

 

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