Charitable Lead Trusts
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Charitable Lead Trusts

Whether property, securities or cash, a chartable lead trust can make the most of your assets. By entrusting American Friends for Meir Panim with your assets for a fixed term, you can potentially offset estate taxes and provide the best financial situation for your estate’s beneficiaries while fulfilling your philanthropic goals.

  • Possible avoidance of taxes on future appreciation of your transferred assets.
  • On expiration of the trust, donated assets revert to the donor or named beneficiary.
  • Opportunity to direct your annual charitable contribution.
  • Determine when income is generated for favorable tax benefits.
  • Potential to offset estate taxes.

 

How It Works

A Charitable Lead Trust is established for a specific term through the contribution of an income-generating asset, often real property, to a qualified charity. Contributions of an appreciating asset will generally create greater donor benefits. The trust pays a fixed annuity to one or more charities. At the expiration of the term of the trust, the property reverts to the donor or, more commonly, to another specified beneficiary. 

Any gift or estate tax that might be due with respect to the transfer of the asset to another party is fixed with regard to the value of the property as of the date if was contributed to the trust. It is then offset or eliminated entirely by the applicable deduction, based on the annual income disturbed to the charity and the term of the trust, and calculate according to an IRS formula. Trust payment rates and terms are selected in order to minimize the relevant transfer tax. 

If the property reverts to the donor, an income-tax deduction is created at the time the trust is formed. The income generated annually, however, must be recognized by the donor. In this instance, the Charitable Lead Trust enables the donor to shift the recognition and timing of income. Generally, however, these trusts are created to move assets to the next generation of a family at significantly reduced transfer-tax costs, and the income-tax deduction is of lesser importance.