How a Charitable Lead Trust Works
- You transfer a minimum of $100,000 of cash, securities, or other appreciated property into an irrevocable trust.
- For a specified number of years, or for the life of a designated individual(s), the trust pays an income stream to Tufts University at least once a year.
- When the trust terminates, the remaining principal passes to noncharitable beneficiaries (i.e., you, your heirs, or other individuals).
Benefits of a Charitable Lead Trust
- All appreciation of the trust assets can pass to the next generation tax-free.
- Typically, you will be entitled to a gift tax charitable deduction for the value of the payments made to Tufts, resulting in a lower taxable (or gift tax-free) gift.
- When structured in a particular way, the remaining trust assets will not be included in your estate for estate tax purposes.
- In many cases, the income earned by a nongrantor charitable lead trust is not taxable to you.
Important Factors to Consider
- Setting up a charitable lead trust is relatively easy, but you should work with an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we may be able to provide you with an initial draft of the trust agreement for review by you and your attorney.
- You, the university, a financial adviser, or an institution can serve as trustee. If you choose to serve as trustee and do not retain any beneficial interest in the trust at its termination, you should not hold any fiduciary powers that could result in adverse tax consequences. Tufts is currently the trustee for a significant portfolio of charitable trusts, and any fees are paid for by your trust. Alternately, you may wish to have your financial adviser oversee the investment of the trust.
- The income stream for Tufts can be structured in two ways. A charitable lead annuity trust pays the university a fixed dollar amount each year. A charitable lead unitrust pays the university a fixed percentage of the fair market value of the trust, determined annually.
- It may not be possible to receive an immediate charitable income tax deduction when you establish a charitable lead trust.
A Charitable Lead Trust May be Right for You if...
- You want to reduce possible future gift and estate taxes.
- You want the option of choosing the trustees of your gift plan.
- You would like your gift to benefit one or more charities.