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Charitable Lead Trust

Charitable Lead Trust
Property
Lead Trust
Term of
Years
Trust to Family
Income to JFNA
Lead Trust
If you are looking for a way to pass on some of your assets to your family while reducing or eliminating gift or estate taxes, a charitable lead trust is an excellent option.

How it Works

  1. You contribute property to a trust that pays your Jewish Federation, Jewish Community Foundation or The Jewish Federations of North America a fixed dollar amount (annuity) or a percentage of the value of the trust assets calculated annually (unitrust amount) for a term of years or for a period measured by your lifetime or the lifetimes of certain family members.
  2. You receive a gift or estate tax deduction at the time of your gift.
  3. At the end of the charitable term, your family receives the remaining assets.

Zero Tax Plan

It is even possible to set up a charitable lead annuity trust that will allow you to transfer assets to your family with zero gift or estate taxes. The stream of charitable payments from the trust is designed to be equal in value to the assets that you use to fund the trust. The IRS assumes that a lead trust is earning at the current federal rate, which, in April 2013, for example, was very low at 1.4%. If the actual return on the trust's investments is higher than the IRS rate, then property will be left in the trust at the end of the charitable term and pass to your family with zero gift or estate tax.

Leveraged Lead Trust Plan

You can leverage your lead trust plan by funding it with assets that are subject to valuation discounts, such as an interest in a limited liability company or partnership formed to hold and manage investments for your family members. Using such assets to fund the trust can result in more assets passing to your family members, transfer tax-free, at the end of the charitable term.

Increasing Payment Lead Trust

With increased volatility in the stock market you may also want to consider creating a lead annuity trust that makes charitable payments that increase over the charitable term. Low payouts in early years allow the trust to grow before the large payments become due. This plan provides an additional benefit to your family if the trust investments outperform the IRS rate, and it provides the trust with more time to recover if the economy produces below-average returns in the early years of the charitable term.

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Any tax consequences described on this page are based on U.S. federal tax law. Charitable deductions from state and local taxes or from Canadian and provincial taxes may not be available to the same extent as from U.S. federal taxes. The Jewish Federations of North America (JFNA) does not provide legal advice. Donors are encouraged to seek independent tax and legal counsel. You may read JFNA's charitable solicitation disclosure statement here and important information about endowment gifts and bequests to JFNA here.