Charitable Lead Trust
Martin S. and Barbara S., long-time ADL donors in their early 60s, want to make a significant contribution to support ADL Foundation's Legacy Campaign and also to maximize the amount of wealth they will one day transfer to their children, Susan, age 25, and Ben, age 30. They decide to establish a charitable lead annuity trust (CLAT).
Their advisors suggest a lead trust would be a good way to satisfy their contribution to ADLF and to pass assets to heirs virtually free of transfer taxes. They decide to fund a non-grantor charitable lead annuity trust (CLAT) with $5,000,000 of appreciating stock. The trust will distribute income to the ADL Foundation for 20 years based on an annuity rate of 5.768%. The income to ADLF will be $288,400 per year, for a total of $5,768,000.
When the trust ends in 20 years, the children will be 45 and 50 years old. At that time, the value of the trust, based on the $5,000,000 originally transferred, plus any growth in trust value reduced by the annual annuity payments, will be transferred to the children. Based on an assumed annual net earnings rate of 6%, the heirs will receive an inheritance of approximately $5,426,000 free of gift and estate taxes. Since the present value of the payments to the ADL Foundation is equal to the $5 million value of the trust, the taxable gift to the children is zero and therefore no gift tax is owed for creating the CLAT.
For a personalized illustration showing you the benefits of a charitable lead trust for your family, or for more information, please contact us.
The assumed date of transfer for this example is November 14, 2011. This example has used the November 2011 IRC Section 7520 discount rate of 1.4% to optimize the charitable deduction.
Maybe. If the trust is structured a certain way, you'll be eligible to claim an income tax deduction in the year you set up your trust. However, that means that all of the trust income in following years will be taxed to you as well (including the payments made to ADLF). Most donors structure their CLTs in a way that does not yield a current income tax deduction so that they don't have to worry about income tax issues in the future. In both cases, you are able to provide wonderful support to ADLF and to pass trust appreciation to your family free of gift and estate tax. We can provide you and your advisors with information that will help you decide which type of CLT will work better for you.
The term for your charitable lead trust can for a period of years or the lifetime of the donor. If you want to maximize the benefit to ADLF and minimize transfer taxes, we can help you determine the optimum term to accomplish your goals. Generally, the longer the term, the lower the taxable gift to your remainder beneficiaries and the higher the benefit to ADLF.
The professionals at our Department of National Planned Giving, Legacy and Endowments will be happy to discuss your interests, concerns and financial options, and work personally with you and/or your legal and financial advisors to create a plan that meets your needs and supports the Anti-Defamation League Foundation.
For more information, please contact:
Director of National Planned Giving, Legacy and Endowments
Anti-Defamation League Foundation (ADLF)
605 Third Avenue
New York, NY 10158
This information is provided for educational purposes. The Anti-Defamation League Foundation and ADL are not financial, legal or tax advisors. Please contact your advisors regarding your financial, legal or tax needs.