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Charitable Lead Trusts

All charitable giving tends to lessen the taxable estate, but a charitable lead trust can dramatically reduce estate taxes. Charitable lead trusts make a series of payments to charitable organizations like St. Anne's-Belfield School. Those payments bring tax benefits that make it possible to transfer trust assets to family at greatly reduced estate tax.

Lead trusts, step-by-step:

  • First, the creator of the trust funds the trust with property that will pay dependable income over time.
  • Then, the trust's creator directs the trust to make certain payments to the school (and other charities) for a period of years, a lifetime, or both.
  • During the trust term, lead trusts use income from trust assets to make these payments. Meanwhile, the trustee manages the trust property.
  • At the end of the trust period, the trust ends, charitable payments cease, and the assets of the trust are directed as specified by the trust's creator, generally to family members of any generation.
  • The creator of the trust receives a substantial gift or estate tax deduction on the final transfer to the family. Plus, any appreciation in the assets while in trust avoids transfer tax.


Example

Mr. and Mrs. Lee own an apartment building worth $2,000,000 which yields gross rental income of $150,000 yearly. The Lees, both age 72, want their two grown children to inherit the apartment house at the lowest possible estate tax cost. They put the building in a charitable lead trust for a 15 year period, and direct the trustee to divide the trust's net income of around $135,000 (after expenses) equally between St. Anne's - Belfield School, and the Lees' college alma maters. The Lees earn an estate tax deduction of between $1,300,000 and $1,750,000 (depending on IRS rules), reducing the tax liability on the transfer to their children to an amount well within the current estate tax credit. Plus, the Lees have the immense satisfaction of giving almost $1,000,000 over time to St. Anne's–Belfield School (almost $50,000 pear year for the trust's estimated duration of 20 years).

Charitable lead trusts are complicated legal entities and require careful consultation with expert counsel. Any information concerning lead trusts or other giving options, on this website or otherwise, provided by St. Anne's-Belfield School is of a general educational nature only and does not constitute, or substitute for, legal advice. Please seek competent legal advice regarding how a lead trust might advance family financial goals.