Charitable Lead Trusts: Getting Started
Do you want to benefit from the tax savings that result from supporting OHSU Foundation, yet you don't want to give up any assets that you'd like your family to receive someday? You can have it both ways with a charitable lead trust.
How It Works
You give assets to a trust that pays OHSU Foundation an income for a number of years, which you choose. The longer the length of time, the better the gift tax savings for you. When the term is up, the remaining trust assets go to you, your family or other beneficiaries you select. This is an excellent way to transfer property to family members down the line (typically children and grandchildren) at a minimal cost.
There are two basic types of charitable lead trusts: a grantor lead trust and a non grantor or family lead trust. Which one is right for you?
In a grantor lead trust, you are considered the owner of the trust. You receive the remainder interest at the end of the trust's term. As the owner, you are taxed on all the income. You are entitled to claim a current federal income tax deduction for the present value of the income payments to charity. This type of trust works well if it is funded with municipal bonds.
A more popular option is the non grantor or family lead trust. With this type of trust, your family members receive the remainder interest at the end of the trust's term. You do not qualify for an income tax deduction. However, you will receive a charitable gift tax deduction for the present value of the charity's interest. This is an excellent way to transfer property to family members down the line at a minimal tax cost. This type of charitable lead trust is especially appealing to OHSU Foundation supporters who have appreciating assets and are financially comfortable enough that they can forgo investment income on some assets.
Fixed or Variable Charitable Payments?
A charitable lead trust can make payments in one of two ways: A charitable lead annuity trust pays a fixed amount each year to OHSU Foundation, whereas a charitable lead unitrust (the less common type) pays a variable amount each year based on the value of the assets in the trust. With a unitrust, if the trust's assets go up in value, the payments to our organization go up as well. On the other hand, if the assets decrease in value, so do our payments.
You can create a lifetime charitable lead trust to take effect today, or you can set up the trust to take effect at your death (a testamentary trust).
Your Main Benefits
- You support an organization you love while also making sure your family is taken care of after your lifetime.
- The gift qualifies for gift or estate tax savings based on the current value of the income paid to OHSU Foundation over the trust term. (Ask your legal and tax advisors for more information about your possible tax savings.)
Assume you pass away leaving a taxable estate of $10 million. For each $1 million over the estate tax threshold that you leave to your family, estate taxes could consume up to $400,000 and your heirs will receive only $600,000. With a lead trust, you can transfer $1 million to your heirs—albeit after your death—leaving only $51,1601 subject to tax, instead of $1 million.
To accomplish this, you create a $1 million lead trust from your estate (a testamentary charitable lead trust) that will pay a qualified charitable organization $60,000 annually for 18 years. When the trust ends in 18 years, the remaining trust assets will go to your named beneficiaries.
This is just one example. The size of your trust and its terms are up to you.
We Can Help
Contact Office of Gift Planning at Toll Free 800-462-6608 or 503-228-1730 or firstname.lastname@example.org for more information about this type of gift that supports our work and helps you meet your financial goals.
1Based on annual payments and a 2.4 percent charitable midterm federal rate; this rate changes monthly.
Getting Started | Helpful Definitions | Is This Gift Right for You? | Case Study | The Best Time to Make This Gift | How to Complete Your Gift | Action Items