Charitable Lead Trust

Charitable non grantor lead trusts provide the opportunity to make significant charitable gifts during your lifetime, while passing assets to your heirs with a sharply discounted tax bill. In fact, when interest rates are low enough, it is possible to eliminate gift and estate tax entirely.

Lead annuity trusts make fixed dollar value payments each year. The payment amount is calculated as a percentage of the initial value of the trust.

Lead unitrusts make variable payments, recalculated each year as a fixed percentage of the value of the trust as valued on the first day of each year.

Example:

Ray `75 is the father of twins: Buck and Nell, age 22 who graduated from Bucknell University in May. Ray is interested is having his children receive a portion of his wealth during his lifetime, but he is does not want to give his children a large sum of money yet. He wants them to remain motivated to pursue careers. Ray would like to help them out later on, when they have their own families and different types of expenses. At the same time, Ray wishes to make a significant gift to his alma mater.

Ray decides to establish a $2 million charitable lead annuity trust, which will run for 20 years, or until Buck and Nell are 42. During those 20 years, the trust will pay exactly $140,000 a year to the university. Using the IRS 4.8% discount rate (available through September 30, 2005), the present value of the gift to Bucknell equals $1,806,260 million and the gift to the children equals $193,740. Gift tax must only be paid on the $193,740. However, assuming that the trust grows to $2,900,000 in 20 years; the $2,900,000 will pass to the Buck and Nell free of any additional gift tax, and Bucknell will have received $2,800,000.

Charitable grantor lead trusts are less common than the non grantor lead trust illustrated above. Rather than pass the assets to your heirs at the end of the trust term, the principal reverts back to the grantor. An charitable income tax deduction is earned for the donor when the gift is funded, but income paid to a charity by a the trust may be taxable, in kind, to the grantor.

Minimum gift size: $100,000

For additional information, contact the Office of Gift Planning at 570-577-3200 or giftplanning@bucknell.edu.