Southeastern Louisiana University

Charitable Lead Trusts

The charitable lead trust allows you to make a future transfer of assets to your heirs at a reduced gift and estate tax cost, while continuing to support Southeastern during your lifetime. During a specified number of years, an annuity or a fixed percentage of the trust assets is paid to SDF. At the end of the trust term, the assets are passed to the beneficiaries you name.

The short- and long-term benefits for your estate can be significant. First, you can receive a charitable gift tax deduction for the present value of the annual trust payments to SDF. This deduction can be used to reduce your gift and estate tax liability on substantial transfers to children or grandchildren. *

Although you will not have any income tax deduction, a second advantage is that the income earned by the trust is excluded from your gross income and is, therefore, not taxable to you. In effect, this produces a reduction of your taxes over the trust term.

A third attractive aspect of the lead trust is that any appreciation in the assets during the term of the trust is not subject to additional gift or estate taxation. As a result, you may be able to pass on to your heirs a larger estate after taxes than would otherwise be possible.

The assets of the trust can be invested and managed by SDF(at no charge) or by another trustee of your choice.

A charitable lead trust can be established with publicly traded securities, closely held stock, income-producing real estate, partnership interests or a combination of the above. A lead trust can be established during your lifetime, as a testamentary trust under your will, or through a pour over from your estate to a "dry" trust established during your lifetime. (Typically, a lead trust is appropriate for high net worth individuals who wish to fund the trust with assets valued at $500,000 or more.)

Example

Charitable lead annuity trust established with property valued at $500,000 for a 20-year term, assuming a 7% payout to SDF and 10% total return earned by the trust.

Gift Tax Deduction…………………$395,000

Gift Tax Due**…………………………$0

Benefit To Heirs…………………….$1,245,100

Benefit To SDF…….………………..$ 700,000                

Grantor Lead Trust

At the end of the term of a grantor lead trust, the trust assets revert back to you, rather than being passed on to your heirs. Under the grantor lead trust, you receive an income tax deduction for the present value of the annual trust payments to SDF. The grantor lead trust may be appropriate if you wish to accelerate future deductions into the current year.