|
 A
charitable lead trust works in the reverse order of life
income gifts. While the assets are in trust, the trust
makes payments to Barnard. When the trust terminates (usually
after a pre-determined number of years), the assets are
transferred back to you or your heirs, as decided by you.
Lead
trusts can be effective estate planning vehicles, because
all the appreciation that occurs within the trust during
the trust term passes through to the eventual beneficiary
(if other than the donor) free of estate and gift taxes.
There
are two types of lead trusts: the grantor lead trust and
the non-grantor lead trust.
Grantor
Lead Trust
As a grantor lead trust donor, you contribute assets to
a trust, which makes payments to Barnard for the duration
of the trust. When the trust terminates, the assets usually
revert to you and/or your spouse.
- When
you create a grantor lead trust, you are entitled to
an immediate income tax charitable deduction equal to
the present value of the income stream that Barnard
will receive during the life of the trust.
-
You must report on your personal tax return all the
taxable income earned by the trust.
Non-Grantor
Lead Trust
As a non-grantor lead trust donor, you contribute assets
to a trust, which makes payments to Barnard for the duration
of the trust. When the trust terminates, the assets are
transferred to someone other than you or your spouse (usually
children or grandchildren).
- When
you create a non-grantor lead trust, you do not qualify
for an income tax charitable deduction, but you also
do not have to report any trust income on your personal
tax return.
-
You will, however, enjoy a substantial reduction in
estate and gift taxes on the future transfer of assets
to your heirs.
Example
Marci '59 and Mark Matthews would like to make a significant
gift to Barnard and give their children some of their
wealth while they are living. Because the Matthews' estate
is worth over $2 million, they are concerned about the
high federal estate tax (currently 39% for their bracket),
which would reduce the assets that pass to their family
through their will. Though the Tax Relief Act of 2001
calls for estate taxes to decrease until 2010 when all
estate taxes are to be repealed, unless the Act is voted
back in by Congress in 2011, the provision "sunsets,"
and estate taxes are back in effect. In this climate of
uncertainty, the Matthews' decide to plan for the possibility
that the estate tax will come back into effect.
After
exploring their options, the Matthews set up a $250,000
lead trust with Barnard College. The trust will pay Barnard
7% (approximately $17,500) annually, each year for 20
years, after which their children will receive the trust
principal.
Only
$63,700 of the $250,000 transferred to the trust is considered
a taxable gift to their children (this may be applied
to the Matthews' unified tax credit). The trust is expected
to grow to about $420,000 during its 20-year term. The
trust's appreciation and the principal will pass to the
Matthews' children at reduced gift tax and completely
free of estate tax.
Over
the 20 year term, Barnard College will receive about $470,000
from the trust, which will help to ensure the future of
educational excellence at Barnard.
Please
note: This example is for illustration only. Please contact
Barnard's Office of Planned Giving to see personal examples
of how a charitable lead trust may benefit you.
If you
have created a charitable lead trust for the benefit of
Barnard College you might be intersted in becoming a member
of The Athena Society.
Click
here for information on how to contact the Office of
Planned Giving at Barnard.
|
