Charitable Lead Trust
Protect Your Assets
If you want to make an impact now at the Arthritis Foundation and also provide for your family later, consider setting up a charitable lead trust. You transfer cash or other assets to a trust that makes payments to the Arthritis Foundation for a period of time. When the term is up, the remaining trust passes to your family or other beneficiaries you select.
There are two ways that charitable lead trusts make payments to the Arthritis Foundation:
A charitable lead annuity trust pays a fixed amount each year to the Arthritis Foundation and is more attractive when interest rates are low.
A charitable lead unitrust pays a variable amount each year to the Arthritis Foundation based on the value of the assets in the trust. With a unitrust, if the trust's assets go up in value, for example, the payments to the Arthritis Foundation go up as well.
An Example of How It Works
George would like to support the Arthritis Foundation and provide for his children. George received a windfall amount of income and needs a large income tax deduction to offset the income. Following his advisor's recommendation, George funds a grantor charitable lead annuity trust with assets valued at $1,000,000. George's trust pays $70,000 (7 percent of the initial fair market value) to the Arthritis Foundation each year for 15 years, which will total $1,050,000. After that, the balance in the trust reverts back to George. He receives an income tax charitable deduction of $854,311. Assuming the trust earns an average 6 percent annual rate of return, George receives approximately $767,240 at the end of the trust term.
*Assuming annual payments and a 3.2 percent charitable midterm federal rate.
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