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Getting Started: Charitable Lead Trusts

Did You Know?
You can create a lifetime charitable lead trust to take effect today, or you can set up the trust to take effect at your death (a testamentary trust).]

Do you want to benefit from the tax savings that result from supporting Sisters Hospital Foundation, yet you don?t want to give up any assets that you?d like your family to receive someday? You can have it both ways with a charitable lead trust.

How It Works
You give assets to a trust that pays Sisters Hospital Foundation an income for a number of years, which you choose. The longer the length of time, the better the gift tax savings for you. When the term is up, the remaining trust assets go to your family or other beneficiaries you select.

This is an excellent way to transfer property to family members down the line (typically children and grandchildren) at a minimal tax cost. This type of charitable lead trust (also called a nongrantor, or family lead, trust) is especially appealing to Sisters Hospital Foundation supporters who are financially comfortable enough that they can forgo investment income on some assets.

Fixed or Variable Charitable Payments?
A charitable lead trust can make payments in one of two ways: a charitable lead annuity trust pays a fixed amount each year to Sisters Hospital Foundation, whereas a charitable lead unitrust (the less common type) pays a variable amount each year based on the value of the assets in the trust. With a unitrust, if the trust?s assets go up in value, the payments to our organization go up as well. On the other hand, if the assets decrease in value, so do our payments.

Your Main Benefits

You support an organization you love while also making sure your family is taken care of after your lifetime.
The gift qualifies for gift or estate tax savings based on the current value of the income paid to Sisters Hospital Foundation over the trust term. (Ask your legal and tax advisors for more information about your possible tax savings.)

[Calculator icon] Calculate how a charitable lead annuity trust can benefit you.

[Calculator icon] Calculate how a charitable lead unitrust can benefit you.

Example
Assume your estate is subject to estate taxes ($3.5 million is the threshold in 2009). For each $1 million over the threshold that you leave to your family, estate taxes will consume $450,000 and your heirs will get $550,000.With a lead trust, you can transfer $1 million to your heirs?albeit after your death?leaving only $107,370* subject to tax, instead of $1 million.

To accomplish this, you create a $1 million lead trust from your estate (a testamentary charitable lead trust) that will pay Sisters Hospital Foundation $70,000 annually for 17 years. When the trust ends in 17 years, the remaining trust assets will go to your named beneficiaries.This is just one example. The size of your trust and its terms are up to you.

*Based on annual payments and a 3.4 percent charitable midterm federal rate; this rate changes monthly.

We Can Help

Please call Julie Snyder at 716-862-1992, or e-mail us at jsnyder@chsbuffalo.org, for more information.

The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.