Charitable Lead Trusts

Whether property, securities, or cash, a charitable lead trust can make the most of your assets. By entrusting UJA-Federation with your assets for a fixed term, you can potentially offset estate taxes and provide the best financial situation for your estate’s beneficiaries while fulfilling your philanthropic goals.

• Possible avoidance of taxes on future appreciation of your transferred assets.
• On expiration of the trust, donated assets revert to the donor or named beneficiary.
• Opportunity to direct your annual charitable contribution.
• Determine when income is generated for favorable tax benefits.
• Potential to offset estate taxes.

Leverage Your Assets

A Charitable Lead Trust is established for a specific term through the contribution of an income-generating asset, often real property, to a qualified charity. Contribution of an appreciating asset will generally create greater donor benefits. The trust pays a fixed annuity to one or more charities. At the expiration of the term of the trust, the property reverts to the donor or, more commonly, to another specified beneficiary. (Operating and maintenance costs related to the asset are paid by the trust.)

Any gift or estate tax that might be due with respect to the transfer of the asset to another party is fixed with regard to the value of the property as of the date it was contributed to the trust. It is then offset or eliminated entirely by the applicable deduction, based on the annual income distributed to the charity and the term of the trust, and calculated according to an IRS formula. Trust payment rates and terms are selected in order to minimize the relevant transfer tax.

If the property reverts to the donor, an income-tax deduction is created at the time the trust is formed. The income generated annually, however, must be recognized by the donor. In this instance, the Charitable Lead Trust enables the donor to shift the recognition and timing of income. Generally, however, these trusts are created to move assets to the next generation of a family at significantly reduced transfer-tax costs, and the income-tax deduction is of lesser importance.