Charitable Lead Trusts

There is a way to make a charitable gift using funds that would eventually be returned to you or your loved ones.

A charitable lead trust can provide significant charitable and tax benefits. This form of trust can be a means to transfer substantial amounts of wealth to your family while reducing or eliminating gift and estate tax. During the term of the trust, income is paid to the University of Maine Foundation to fund an endowment or support the program of your choice. When the trust terminates, the assets revert to the donor or another beneficiary but the appreciation is not subject to further gift or estate tax.

Frank’s goal was to leave $500,000 to his daughter. He was surprised to learn that it could require a gift from his estate of up to $1 million or more for her to realize $500,000 after payment of federal and possibly state estate taxes. After considering a number of options, he decided to use $500,000 to create a charitable lead trust that will pay a fixed amount of 7% or $35,000 for 20 years to the University of Maine Foundation. He chose the time period and payout rate at the time he established the trust. The charitable gifts from this plan will total $700,000, substantially more than the amount originally placed in trust. At the end of 20 years, the remaining assets in the lead trust will go to his daughter.

A charitable lead trust is a valuable gift and estate-planning tool. If you want to reduce your current income but wish to retain assets for your family, provide much needed support for the University of Maine, and reduce your gift and estate tax exposure, call your tax advisor to discuss the benefits of establishing a charitable lead trust.