A charitable lead trust is a philanthropic and estate planning tool. A donor can transfer assets, such as cash, stocks and artwork, to a trust for a set term of years. Each year, payments are made from the trust to the church. It is called a lead trust because the church is entitled to the lead (or first) interest in the trust’s assets and the non-charitable beneficiary receives the remainder (or second-in-line) interest. Once the trust's term expires, what is left goes to the donor's heirs. Handling assets in this way can shelter the assets' appreciation from estate taxes.
Two Types of Charitable Lead Trusts
Charitable lead trusts are of two types: charitable lead annuity trusts and charitable lead unitrusts. In the first type, the donor sets a fixed annual gift for the church. In the unitrust, the church receive a percentage of the trust's value each year. This means that those benefits will fluctuate based on the trust's investment returns or losses. Annuity trusts are the most popular because the charitable payments are fixed. In the unitrust assets grow and the percentage going to church uses up more and more money, thus leaving less for the heirs.
These sophisticated estate planning devices will allow members and friends of the church to support the church’s important work and remember one’s heirs. For more information regarding charitable lead trusts and other beneficial trust instruments please contact your estate planning professional, accountant or attorney.