Charitable Lead Trust

A charitable lead trust is one of the most effective techniques available to pass wealth to the next generation with a minimum of transfer taxes. A Charitable Lead Trust can be created during the donor's lifetime or by will/bequest. The gift is placed in the lead trust for a fixed period of years, usually 10 to 25. Annual payments from the lead trust support the area of Delgado Community College designated by the donor. Payments may be a fixed amount (annuity trust) or a fixed percentage of the value of the trust (unitrust). When the trust term ends, the remaining principal is returned to the individuals named by the donor, typically the donor's children or grandchildren.

Advantages of a Charitable Lead Trust

  • It provides significant support for a Delgado Community College program important to you.

  • It can provide a substantial inheritance for your heirs.

  • You receive a gift or estate tax deduction based on the present value of your projected gift payments to Delgado Community College.

  • It reduces the size of your estate and thus the estate taxes that could be due upon your death.

  • You will be invited to join the Delgado 1921 Society at Delgado Community College in recognition of this planned gift.

Example: A donor makes a $1 million gift to Delgado Community College to establish a charitable lead annuity trust. Over a 20-year period, if the trust averages 8% annual return, and pays out 8% of the original trust per year, Delgado Community College will receive $1,600,000 by the end of the 20-year term, and the heirs will receive $1,000,000 tax free.

Assets to Use for a Lead Trust

  • Cash or other income-producing assets.

  • Interests in family businesses and family limited partnerships.

  • Income-producing property with a high-appreciation potential--allows property to be transferred eventually to family beneficiaries at a low cost.

Who Is a Good Candidate to Establish a Lead Trust?

  • A person who has more income than he or she feels is necessary.

  • A person who wishes to transfer assets to children or grandchildren at reduced gift and/or estate tax cost.

  • A person who has an income-producing asset suitable to establish a lead trust.

Note that a lead trust is not tax-exempt. Therefore, it can be disadvantageous to establish a charitable lead trust with an appreciated asset if the plan is for the trust to sell the asset. On the other hand, if the asset is appreciated stock and the trust sells just enough each year to make its payout, the trust can work well.

Types of Charitable Lead Trusts

Non-Grantor: The trust principal is distributed to donor's heirs at the end of the trust term, which is the most common type of charitable lead trust.

Grantor: The trust principal is returned to the donor at the end of the trust term.

For more information about establishing a Charitable Lead Trust, please call (504) 671-5412.