Charitable Lead Trusts
Charitable lead trusts help transfer assets to loved ones while greatly reducing or possibly eliminating gift and estate taxes. These trusts also allow donors to provide annual support to the Downeast Lakes Land Trust (DLLT) for a specified period—either during a person’s lifetime or for a set number of years.
Charitable lead trusts frequently attract wealthy donors who aim to address substantial gift or estate tax issues. Donations are usually significant, often estimated at approximately $500,000 or more.
Establishing a lead trust
First, a donor works with advisors to establish a charitable lead trust and transfer assets to it. This transaction is irrevocable. The donor then chooses the dollar amount that DLLT (and possibly other charities) will receive from the trust each year and determines the term of the trust.
Certain annual payout amounts can remove gift and estate tax liabilities linked to the trust’s final asset transfer to the donor’s heirs. Typically, the charitable payout rate is lower in a low-interest rate environment, enabling more assets to be passed to heirs when the trust term ends.
Features
- Transfers assets to heirs while minimizing or eliminating estate and gift taxes.
- Provides a reliable income source for DLLT, as designated by the donor.
- Almost any type of asset can be contributed, with cash and stock being the most common.
Example of how it works
A donor establishes a charitable lead trust with a ten-year term and funds it with a $2 million gift. The trust’s terms stipulate that DLLT will receive an annual fixed payment of $120,000 (at a rate of 6.0 percent) throughout the trust’s duration. At the end of the ten years, the remaining assets will pass to the heirs free from gift or estate taxes, regardless of the transfer amount. If the trust’s investments yield an annual return of 7 percent, the heirs will receive over $2,276,000—also exempt from gift or estate taxes—while DLLT will have received a total of $1,200,000 by the end of the trust.
Have You Already Made a Provision for DLLT?
If you have made a provision for DLLT in your estate plans, please inform us of your intentions by filling out our secure online form to document your provision. Sharing information about your plans for DLLT ensures that your wishes are understood by the trust.
For more information, please call the Downeast Lakes Land Trust office at 207-796-2100.
Please understand that we cannot offer legal or financial advice, and none of the information provided above should be construed as such. We suggest consulting your own legal counsel or financial advisor before deciding whether to proceed with a gift.
The tax benefits of this type of lead trust typically include reducing or eliminating gift and estate taxes. This lead trust is a taxable trust and can receive an unlimited income tax deduction for the charitable distributions it makes each year. However, a charitable lead trust does not allow the donor to claim an income tax deduction. The effectiveness of a charitable lead trust depends, in part, on the IRS discount rate published each month. The example provided here relates to a lead trust established in September 2018.
