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Charitable Lead Trusts
What is a Charitable Lead Trust?
The Charitable Lead Trust (CLT) is a powerful way to make a future transfer of assets to your heirs at a significantly reduced gift and estate tax cost, while supporting World Vision with the income during the term of the trust. During a specified number of years, an annuity or a fixed percentage of the trust assets is paid to World Vision. At the end of the trust term, the assets are passed to the beneficiaries you name. You can choose the trustee. CLTs are usually funded with assets in excess of $500,000.
Two Types of Lead Trusts
There are two basic types of Lead Trusts: Non-Grantor and Grantor.
In a non-grantor CLT—the most common type—the assets revert to your children, grandchildren, or other heirs. A non-grantor CLT provides a gift tax deduction, and is useful in reducing the cost of intergenerational wealth transfers. In a grantor CLT, the assets revert to you, rather than to your heirs, at the end of the term. A grantor CLT provides an income tax deduction, and may be useful if you wish to accelerate future deductions into the current year. Note: the information provided below pertains to non-grantor CLTs only.
What Are The Advantages of a CLT?
For people who have significant assets, a CLT spells gift and estate tax relief:
- You receive a charitable gift tax deduction for the present value of the annual trust payments to World Vision. This deduction can be used to reduce your gift and estate tax liability on substantial transfers to children or grandchildren.
- Any appreciation that takes place in the assets during the term of the trust is not subject to additional gift or estate taxation. As a result, you may be able to pass on to your heirs a larger estate after taxes than would otherwise be possible.
- The income earned by a CLT is excluded from your gross income and is, therefore, not taxable to you. In effect, this produces a reduction of your taxes over the trust term.
- The assets you contribute to a CLT are removed from your taxable estate, lowering your estate tax liability.
- Unlike most other gift planning arrangements, the benefits of a CLT are immediate to World Vision. Payments from a CLT can be used to fund capital projects as well as endowment.
EXAMPLE (based on 5.0% IRS discount rate)
A Non-Grantor Charitable Lead Annuity Trust with a term of 20 years and a pay out rate of 5%; donor has gross estate of $5 million with no prior taxable gifts or transfers to heirs; trust is funded with appreciated property valued at $1,000,000 with a cost basis of 50%; annual payment of $60,0000 is made to World Vision during the term of the trust; trust terminates and principal passes to children at end of 20 years; average total return on trust investments is 10%; investment management and administration fee of 85 basis points (.85%) is charged to principal of trust by corporate trustee.
| Gross Principal |
$1,000,000 |
| Annual Annuity to World Vision |
$50,000 |
| Gift Tax Deduction |
$623,110 |
| Amount Subject to Gift Tax |
$376,890 |
| Gift Tax Paid By Donor (Due to Gift Tax Exemption) |
$0 |
| . |
. |
| Projected Benefit To Heirs with CLT |
$2,090,478 |
| Projected Benefit To World Vision with CLT |
$1,000,000 |
| Total Projected Benefit with CLT |
$3,090,478 |
| . |
. |
| Projected Benefit To Heirs without CLT |
$2,290,610 |
| Projected Benefit To World Vision without CLT |
$0 |
| Total Projected Benefit without CLT |
$2,290,610 |
How Do I Create a CLT?
Donors establishing a CLT should be advised by an attorney who is experienced in the area of charitable trusts and estate planning. Email the World Vision Gift Planning Department, or complete the personal illustration form so that we can assist you through every step of the process.
You can fund a CLT with publicly traded securities, closely-held stock, income-producing real estate, partnership interests or a combination of these. You can establish a CLT during your lifetime, as a testamentary trust under your will, or through a pour-over from a "dry" trust established during your lifetime.
Appreciated Securities
Bequests
Continuous Child Care Sponsorship Agreement
Pooled Income Funds
Charitable Gift Annuities
Charitable Remainder Trusts
Charitable Lead Trusts
Retained Life Estates
Charitable Bargain Sales
Charitable Vision Fund (a Donor Advised Fund)
Advisor-Managed Donor Advised Fund
Gifts of Other Assets
How to give other assets, such as: Retirement Plans, Real Estate, Closely-Held Stock, Partnership Interests, Tangible Personal Property, and Life Insurance.
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