Ways to Plan a Gift - Charitable Lead Trusts
Definition
An income producing asset is placed into a trust that makes payments
to St. Lawrence for a certain number of years before the trust terminates
and the asset passes back either to the donor or to the donor's heirs.
Further Information
The “lead” in lead trust refers to the payments
that are made from the trust to St. Lawrence before the “remainder” ultimately
passes back to the donor or to the donor's heirs. Some lead trusts are used
to generate a large income tax deduction in one year, with the assets passing
back to the donor at some point in the future; other lead trusts are used
to transfer wealth to heirs and reduce or eliminate estate and gift taxes.
A lead trust may be structured to provide either fixed
(annuity trust) or variable (unitrust) income payments to St. Lawrence. The
payout rate, stated in the trust document, cannot be changed once the trust
is created and is usually determined by a calculation that maximizes the
benefits to the donor and to St. Lawrence. And though the length of the trust
must be defined when the trust is created, there is no limitation on the
number of years and/or lives that may be used to determine the term. Like
the payout rate, the length of the term is determined by a calculation that
maximizes the benefits to the donor and to St. Lawrence.
Usually a bank or trust company is named as trustee of a lead
trust. Almost any asset may be placed into a lead trust, but the asset must
be able to generate enough income to make payments to St. Lawrence each year.
A testamentary lead trust may be created through your estate to minimize
or eliminate estate taxes.
“Types” of Lead Trusts and Tax and Financial
Implications
Two types of lead trusts are most commonly used:
Qualified grantor lead trust
Qualified nongrantor lead trust
A “qualified” trust is drafted in accordance with
IRS guidelines. The donor is considered the “owner” of a “grantor” trust.
The donor is not considered the owner of a “nongrantor” trust.
A donor may place assets in a grantor lead trust, the trust
makes gifts to St. Lawrence for a term of years, and then the assets pass
back to the donor. The donor receives an immediate income tax charitable
deduction for the total value of the future payments that will be made to
St. Lawrence. The donor is also taxed in future years for the income earned
by the trust (oftentimes tax-exempt bonds are used to fund the trust). At
the end of the trust term, the assets in the trust pass back to the donor.
A donor may place assets in a non-grantor lead trust, the trust
makes gifts to St. Lawrence for a term of years, and then the assets pass
to the donor's heirs. The donor receives no income tax charitable deduction
for assets placed into the trust. The trust is responsible for income tax
on earnings to the trust, which are offset by the charitable deduction for
gifts made to St. Lawrence from the trust. The trust is structured so that
by the end of the trust term, the assets in the trust may pass to heirs with
little or no estate and gift tax due.
Charitable Lead Trusts |
Qualified Grantor Trust |
Qualified Nongrantor Trust |
| Provides a significant gift to St. Lawrence |
Yes |
Yes |
| Income tax deduction for lead interest at creation of trust |
Yes |
No |
| Estate or gift tax deduction for lead interest at creation of trust |
Yes |
Yes |
| Donor taxable on trust income each year |
Yes |
No |
| Donor receives income tax deduction for trust payments to St. Lawrence
each year |
No |
No |
| Trust receives income tax deduction for payments to St. Lawrence each
year |
Yes |
Yes |
| Accelerates deduction of future gifts to St. Lawrence into the year
assets are placed into the trust |
Yes |
No |
| Reduces transfer tax in passing assets to heirs |
No |
Yes |
| May be created through your estate plan |
N/A |
Yes |
Process to Create
While every gift situation is unique, there are several steps
that may be outlined to help clarify the process.
- You decide. Our philanthropy is a lifelong process. At some
point in your life you may wish to express your thanks to St. Lawrence
and help ensure a St. Lawrence education for future Laurentians, and
decide to consider a lead trust.
- We talk. You may wish to speak with the planned giving office
to make sure that your wishes can be accomplished at St. Lawrence, and
to generate lead trust projections for your review.
- You talk. You may meet with your financial and legal advisors
to evaluate the financial projections and draw up the necessary legal
documents.
- You sign. You make a final review and sign the appropriate
legal documents with your council creating your lead trust.
- You relax. You have just connected yourself with the past
and the future as you continue the good work of those who came before
you, and you prepare the way for those who will come after you. Enjoy
the moment!
What to Expect After Your Plan is Created
The creation of your plan is the start of a new relationship
with St. Lawrence:
- If you are a new member of the Manley Society, you will receive letters
of welcome.
- As a Manley Society member, you will receive the society annual report
each year, and an invitation to the annual meeting held during reunion
each June.
- You will be recognized as a member in the university annual Report
of Appreciation as a way for us to say “thank you” and encourage
others to plan for St. Lawrence as well.
This web page does not provide legal or financial advice, nor is it intended as a comprehensive review of the topic. You should consult your attorney, tax advisor and St. Lawrence before making or planning your gift.
