CHARITABLE LEAD TRUST
A charitable lead trust allows donors to pass wealth on to heirs with reduced estate and gift tax, and make a gift to the Southern Tier West Development Foundation in the process.

With a charitable lead trust, a donor transfers assets to a trust and directs the trustee to make immediate income payments to the Foundation for a term of years or for the lives of specified individuals. With the most common type of charitable lead trust (a non-grantor charitable lead trust), at the end of the trust's term, the trust property is returned to family members or other designated individuals.

The donor will receive a federal gift tax deduction for the value of the income interest passing to the Foundation. In addition, although the donor will not receive an income tax deduction, the donor is not taxed on any of the income earned by the trust. Taxable income generated by the trust and capital gains realized by the trust are taxed to the trust, but the trust is allowed a charitable deduction each year for the amount of the distributions to the Foundation in that year.

Finally, any appreciation that passes to family members is not subject to gift tax. Gift taxes are due when the trust is funded but are based on the value of the gift to family members calculated when the trust is created. A donor may use all or part of his or her lifetime-unified credit to offset or eliminate gift taxes. In addition, the trust assets will be removed from the donor's estate for estate tax purposes. (Note: Gifts to grandchildren may result in Generation Skipping Transfer Tax.)

A charitable lead unitrust is a custom designed and individually managed trust that enables the donor to give a variable dollar amount to the charity for a fixed term of years of the life of one or more individuals.

A charitable lead annuity trust is a custom designed and individually managed trust that enables the donor to give a fixed dollar amount to a charity for either a fixed term of years or the life of one or more individuals. Additional gifts may be made to a charitable lead unitrust but not to a charitable lead annuity trust. Both types of charitable lead trust may be established during life or by will.

The typical donor:

- Has a moderate to large taxable estate.
- Has given to charities in the past.
- Holds assets with growth potential.
- Desires to pass certain assets to heirs.

Gift features and benefits:

- Gift and estate tax deduction on the value of assets transferred.
- Growth transferred tax-free.
- Perpetuates a tradition of charitable giving.
- Management of assets transferred.
How To Make a Gift Using a Charitable Lead Trust

A non-grantor charitable lead annuity trust document, the form of charitable lead trust most commonly used, is tailored to your needs by your legal professionals. You transfer appropriate assets to the trustee of the charitable lead annuity trust. The assets may be sold or retained, depending on the objectives desired. The trust pays a percentage of the original trust value to the charity. Unlike a charitable remainder trust, a charitable lead annuity trust creates no income tax deduction to you, but the income earned in the trust is not attributed to you. The trust itself is taxed according to trust rates. The trust receives an income tax deduction for the income paid to charity.

The real value of using a charitable lead annuity trust is that the original asset values receive a gift and estate tax deduction based on the value of the income stream given to charity. Excess earnings and growth add to the value of the trust corpus. Each year as the charitable lead annuity trust corpus grows, the percentage paid to the charity represents a smaller percentage of the total trust value. At the end of the trust term, the trust terminates and all the assets in the trust, including growth, are transferred to your heirs without further gift or estate tax.

Before you begin, you should be sure to involve your financial and legal advisors as part of your gift-strategy team. A non-grantor charitable lead annuity trust is only effective as part of an overall financial and estate plan.

Other Facts You Should Know About a Charitable Lead Trust
There are two general types of charitable lead trusts-a grantor charitable lead trust and a no-grantor charitable lead trust. Each can be in the form of a unitrust or an annuity trust. A grantor charitable lead trust provides an income tax deduction on its creation to the grantor (donor); however the grantor is taxed on the income paid to the charity. There are limited uses for grantor charitable lead trusts in both the unitrust and annuity variations. Therefore, a majority of estates use a non-grantor charitable lead annuity trust.

A non-grantor charitable lead annuity trust is primarily used in conjunction with an overall estate plan to provide a vehicle that not only greatly reduces the gift and estate tax on the transfer of high growth assets to heirs, but also provides a transfer of the growth tax free. Often you can remain as the trustee during the term of the trust to control management of its assets. Not only is the income from the trust paid to charity and not taxed to you, but it may also replace or enhance outright charitable gifts you wish to make.

The gift and estate tax deduction on the original transfer of assets is an Internal Revenue Service calculation based on the fair market value transferred minus the present value of the income stream to charity. The longer the term, the greater the deduction. Although this method is an attractive way to transfer assets to heirs and make a substantial gift to the charity, it works best when used in estates of approximately $5 million or more.

Asset Used with This Tool
Cash, Commercial Real Estate, Retirement Plan Assets, Securities

Calculate how a charitable lead annuity trust can benefit you. (lives option) or (term of years option)
or
Calculate how a charitable lead unitrust can benefit you. (lives option) or (term of years option)

Clearly, there are many issues to consider, both legal and personal, when considering the establishment of a charitable lead trust. In the end, you may find that such a trust represents one of the best ways to help the Foundation while planning a deferred transfer of assets to children.