Charitable Lead Trusts
Charitable lead trusts provide annual payments to UMass Law before passing remaining assets to the donor’s family or other named beneficiaries (or even back to the donor).
Clients may find that while there is slightly more effort and expense involved in setting up a trust, it can be an extremely useful and flexible way to:
- Provide significant support for UMass Law over time
- Reduce or even eliminate the taxes customarily due on the transfer of wealth to loved ones
- Qualify for a deduction for gift and estate tax purposes
NOTE: Creating a charitable lead trust during a period of low-interest rates will mean even greater savings in transfer taxes
A charitable lead trust (CLT) works like this:
- The donor transfers money or property to the irrevocable trust (often marketable securities with strong growth potential).
- The donor names the UMass Foundation, for the benefit of UMass Law, as the charitable income beneficiary and chooses who will receive the remaining assets at the end of the trust term.
- The trustee provides careful asset management and pays out annual gifts to us for a set number of years or for the donor’s lifetime. Gifts can be a fixed dollar amount or a fixed percentage of trust assets as revalued each year.
- At the end of the trust term, the trust pays out the remaining assets to the donor’s family members. (The donor can choose to receive the remaining assets, but this type of trust is less common and has different tax treatment.)
What are the tax benefits?
- Pass more wealth to loved ones. The assets in a charitable lead trust may increase in value over the course of the trust term—possibly by a significant amount. If so, no tax is due on the appreciation.
- Minimize estate and gift taxes. The size of the deduction for gift and estate tax purposes is based on the amount paid to charity, the length of the trust term, and the applicable federal rate at the time the donor establishes the trust.
Evaluate the fit.
A CLT may be a particularly good option for clients who want to:
- Pass more wealth to heirs and are comfortable enough to make a substantial financial commitment over a long period of time
- Make an extended impact on the UMass Foundation with significant annual gifts
- Minimize gift and estate taxes
See how it works.
Jackie transfers stock with strong growth potential into a CLT. The trust makes annual payments to the UMass Foundation, for the benefit of UMass Law, for the rest of Jackie’s life. When Jackie passes away, the remaining trust assets pass to her three grown children in equal parts. Since the value of the remainder interest is calculated at the time she created the trust, the children are not taxed on the stock’s significant appreciation over the many years it was held in the trust.
Consider the timing.
Because a CLT does not qualify for an income tax deduction, a donor can create the trust at any time.
The UMass Dartmouth Advancement Team can help.
Reach out to us with any questions on charitable lead trusts.