WHAT IS A CHARITABLE LEAD TRUST? - Planmygift.ucr.edu

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CHARITABLE LEAD TRUST

CharitableLead TrustWHAT IS A CHARITABLELEAD TRUST?1TRUSTproperty to trustASSET23Remainder todonor or familyIncome distributions arepaid to UCRHEIRSA charitable lead trust (CLT) operates by makingannual gifts to UC Riverside while providingsubstantial tax savings to you each year.HOW DOES A CLT WORK?A charitable lead trust is created when you establish and then fundthe trust. The trust provides substantial tax savings to you eachyear. Depending on the type of CLT, you can expect to receive gift,estate, and income tax savings.The trust operates by making annual gifts to UCR, in the form ofeither a fixed or percentage amount, for the duration of the trust.These gifts generate tax benefits. You can use the CLT to help one ormore qualified charities.After the trust term ends, the trust assets are transferred back tonon-charitable beneficiaries such as you or your family members.TWO TYPES OF CHARITABLE LEAD TRUSTSFamily or Non-Grantor Lead TrustSuper Grantor Lead Trust (hybrid)By far the most common lead trust type, a family or non-grantorlead trust transfers the trust assets to your family or other selectedbeneficiaries at the end of the trust term. The main benefit of a familylead trust is that you receive a gift or estate tax deduction for thepresent value of the charitable interest. This deduction allows you topass on significant assets to family at a reduced (or sometimes zero)gift or estate tax cost.A super grantor lead trust is a typeof grantor lead trust that transfersthe trust assets to your family at theend of the trust term (instead of theassets reverting back to you). Whilethe trust assets pass to your familyas with the family or non-grantorlead trust, the trust is drafted asa grantor lead trust. You receivean income tax deduction for thepresent value of the charitable giftsmade. As with a grantor lead trust,all of the trust’s income must bereported on your personal incometax return each year.Grantor Lead TrustUnlike a family lead trust, the assets in a grantor lead trust returnto you, the grantor, at the end of the trust term. In addition toreceiving a gift tax deduction for the gift made to charity, you alsobenefit from an income tax deduction. However, you must report allof the trust’s income on your personal income tax return.This type of trust is sometimes invested in tax-free municipal bondsto reduce or eliminate the annual tax on trust income.Charitable Lead TrustThis information is not intended as tax, legal, orfinancial advice. Gift results may vary. Consult yourpersonal financial advisor for information specificto your situation.

CHARITABLE LEAD TRUST TAXATIONHOW TRUST PAYOUTS ARE TAXEDUnlike a charitable remainder trust, a charitable lead trust is ataxable trust. All income and capital gains the trust accumulatesare subject to tax. The treatment of lead trust income depends onwhether the trust is a family lead trust or a grantor lead trust.Family Lead Trust TaxationWith a family, or non-grantor, lead trust, the trust is taxable andmust file its own tax return each year. Fortunately, there is anunlimited income tax deduction for amounts the trust distributesto charity. Any income or capital gains that are not part of theannual distribution are subject to tax. Since the trust is taxable onaccumulations, it is undesirable to sell all of the appreciated assetstransferred to the trust, as they will be subject to capital gains taxes.Grantor Lead Trust TaxationOne benefit of a family lead trust is that the trust pays any incomeor capital gains taxes due. With a grantor or super grantor lead trust,trust income must be reported as taxable income on the grantor’spersonal tax return. In addition, income or capital gains is taxable tothe grantor. For this reason, a common strategy is to fund a grantorlead trust with appreciated stock. There is a large tax savings in thefirst year and modest tax payments during the remaining years.Charitable Gift Annuity

CHARITABLE LEAD TRUST TAX BENEFITSGIFT OR ESTATE TAX DEDUCTION BENEFITSA lead trust qualifies for a charitable gift or estate tax deductionbased on the present value of the payments made to charity.The gift tax deduction permits you to give significant assets to yourfamily during life at a reduced or zero gift cost. For example, assumeyou establish a 1 million lead trust and receive a gift tax deductionof 400,000. That would allow you to pass on 1 million to familywith a taxable gift of only 600,000. The estate tax deduction permitsyou to pass on significant assets from your estate to your family at areduced or zero estate tax cost.Generation-Skipping Transfer TaxesBecause grandchildren are a common beneficiary of a lead trust,generation-skipping transfer tax (GSTT) may impact the value of theassets passed on to family. Like gift or estate tax, GSTT is atax on assets transferred to others. Gifts that skip a generationinclude gifts made to grandchildren. When you establish a lead trustduring life and include grandchildren as beneficiaries, you have madea gift to them that can be subject to both gift tax and GSTT.However, just like gift and estate taxes, the GSTT also has a lifetimeexemption. This exemption allows you to pass assets from a leadtrust to family at a reduced GSTT cost.Charitable Lead Trust

CHARITABLE LEAD TRUST PAYOUT OPTIONSLEAD TRUST PAYOUTSA lead trust makes payments to charity in one of two ways:Lead Annuity TrustWith a lead annuity trust, the trust pays a fixed amount each yearregardless of the current value of the trust. There is a potentialfor growth in the trust because the annuity is fixed and the trustprincipal can compound. An annuity trust payout is popular for familylead trusts. The fixed payments to charity make it possible to movesubstantial assets along with growth to family with modest use of thegift exemption.Lead UnitrustIn contrast to a lead annuity trust, a lead unitrust pays a percentageof the trust assets to charity. If the trust goes up in value, the amountpaid to charity could increase over time. This means some of thetrust’s growth passes to charity instead of passing to family at theend of the trust term. Therefore, a lead unitrust payout is used lessfrequently than an annuity trust payout.A CHARITABLE LEAD TRUST HELPS YOUYou can ensure your legacy, and you and your family can benefit from taxsavings. Best of all, your gift will help impact the future at UCR. Contactour Planned Giving team today with any questions you have, we wouldlove to speak with you.Charitable Gift Annuity

900 University Avenue, Riverside, CA 92521877.249.0181 planmygift@ucr.edu planmygift.ucr.edu

Charitable Gi t Annuity LEAD TRUST PAYOUTS A lead trust makes payments to charity in one of two ways: Lead Annuity Trust With a lead annuity trust, the trust pays a fixed amount each year regardless of the current value of the trust. There is a potential for growth in the trust because the annuity is fixed and the trust principal can compound.

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