Charitable Lead Trust
What Is a Charitable Lead Trust?
If you have a large estate and are looking for ways
to pass more on to your heirs, a Charitable Lead Trust may be an excellent
plan for you. A Charitable Lead Trust is a gift plan that allows you
to transfer assets to future generations at a significantly reduced gift
or estate tax cost, while providing a stream of income to Columbia for
a term of years. The technical name for this type of Charitable Lead
Trust is a “Non-Grantor Charitable Lead Annuity Trust” as it leads with a stream of fixed annual payments to the University before the assets
revert to non-charitable beneficiaries other than the grantor.
Example
Assume that you use appreciated property with an average cost basis of 50% to fund a $2 million Charitable Lead Annuity Trust (CLAT) that makes a 6 percent annuity payment to Columbia for 20 years, after which the trust principal reverts to your grandchildren in a generation skipping transfer. Assume also that your gross estate is currently $10 million, you have made no previous taxable transfers, you are in the 35 percent federal income tax bracket, and the state income tax for trusts is 2.5 percent. Assume further that your average total investment return is 8.0 percent over the 20 year term. An 5.0 percent IRS Discount Rate is used to calculate the value of the remainder interest to your heirs.
6 Percent CLAT |
Without Trust |
|
Gross principal |
$2,000,000 |
$2,000,000 |
Net principal placed in plan |
$2,000,000 |
$2,000,000 |
Benefit to family |
$3,512,700 |
$2,752,867 |
Benefit to Columbia |
$2,400,000 |
0 |
Total taxes |
$317,779 |
$5,770,711 |
N.B.: Consult legal and tax advisors before making any decisions based on this information.
What Are the Advantages?
The main advantage of a Charitable Lead Annuity Trust (CLAT) is that the term and payout rate of the trust can be adjusted to reduce or even “zero out” the gift tax you owe on the asset transfer to your heirs. In other words, you can make a large asset transfer to your heirs tax-free, while also benefiting Columbia. In addition, any appreciation of the trust goes tax-free to your heirs.
For More Information
If you are considering a charitable lead trust, e-mail
us, complete the Personal Illustration
form, or call us at
800-338-3294.
PLEASE NOTE: Gifts of appreciated securities and other property must have been held by the donor for one year in order to receive a full fair market value tax deduction.
- You get a gift-tax deduction for the present value of the annuity payments to Columbia.
- You can adjust the annuity payments and the term of the trust to reduce or even eliminate the transfer taxes due when the principal reverts to your heirs.
- All appreciation that takes place in the trust goes tax-free to your heirs.
- You can use your available estate-tax credit ($1.5 million per person in 2004; $2.0 million per person beginning in 2006) to reduce taxes on transfers to your heirs.
- You make a significant gift to Columbia now that reduces the taxes due on transfers to your heirs later.
Office of Gift Planning
gift.planning@columbia.edu
475 Riverside Drive
New York, NY 10015
(800) 338-3294
