Charitable Lead Trusts

Development Staff

Many investors and entrepreneurs are more concerned about preserving their estate for their children than they are about increased income or current income tax savings. They may choose the lead trust as a means of sheltering their estate while also providing a gift to Kanuga.

The lead trust holds appreciating assets, pays income to Kanuga for a period of years and then passes the remaining principal back to the donor or to beneficiaries selected by the donor.

The income stream a lead trust provides for Kanuga reduces gift and estate taxes on the lead trust’s assets. Also, the taxable value of a lead trust's assets is fixed at the time the trust is established. Any subsequent increase in the value of the assets is outside the donor's estate and thus free of gift or estate tax.

This combined reduction in the taxable value of the assets means a donor's family often can receive more from an estate plan containing a lead trust than they could from an outright bequest from a parent or grandparent.

Charitable Lead Trust Vs. No Gift

Assumptions

Donor places $500,000 in a lead trust in 2007
Lead trust pays Kanuga a 6 percent annuity for 20 years
After 20 years, the trust terminates and pays balance to donor's children
Asset appreciation projected at 5 percent
Donor will hold additional assets totalling $1,500,000 by 2027
Donor has already given his family the maximum that may be transferred free of gift and estate tax


Comparison of benefits	6 percent Lead Trust	No Trust
Principal	$500,000	$500,000
Annuity to Kanuga	$600,000	-0-
Present Value of 20 Years' Annuity Payments	$312,940	-0-
Gift Tax Deduction	Comparison of benefits	Comparison of benefits
Gift Tax (paid by donor)	$70,453	-0-
Donor's Taxable Estate in 2020	$1,429,547†	$3,914,749‡
Total Federal Estate Tax	$553,387	$1,791,862
Net Estate + Lead Trust	Comparison of benefits	Comparison of benefits
Distribution to Family	$2,383,686	$2,112,887
† Assets of $1,500,000 minus $70,453 gift tax paid in 2007. The $1,507,526 balance of the lead trust is excluded from the Donor's taxable estate. ‡ Appreciated value of $500,000 plus additional assets of $1,500,000

For information and assistance with any form of giving to Kanuga, please contact Randy Boone, Kanuga’s director of development, at 828-692-0077, ext. 240, or . Persons considering a sizeable donation to Kanuga or interested in providing for Kanuga in their estate plan should seek the advice of a financial advisor and/or attorney.