A Charitable Lead Trust allows you to provide an annual income to the ministry or church that you care about, while giving you the ability to pass on some of your assets to family with significantly reduced estate or gift taxes.
You make a gift or your property or assets to fund a trust. That trust makes annual payments to your local church, child sponsorship, missions work, disaster relief, or any other ministry that you choose. This gift is invaluable to ministries because it provides them with a stable source of income for years. After the set period of time has passed, your family receives the trust assets plus any additional growth in value-usually with little to no taxes imposed on the gift.
The flexibility of a Charitable Lead Trust means that there are several trust options you can choose from:
Zero Tax Plan - It is possible to set up a lead trust that will allow you to transfer assets to your family with zero transfer taxes. The IRS assumes that a lead trust is only earning at the current low federal rate. If the actual investments of the trust produce a higher return than the payments made to your chosen beneficiary over the term of the trust, then the full value of the trust may be transferred to family with zero gift tax.
FLP/Lead Trust Plan - To discount your gift to family even more, you may consider first transferring your real estate or other assets into a family limited partnership (FLP), which will fund your lead trust. The combination of the FLP, the lead trust, and a gift exemption can permit the lead trust to pay income to any ministry for a number of years and potentially transfer substantial assets tax-free to your family.
Increasing Payment Lead Trust - With increased volatility in the stock market, you may also want to consider creating a lead trust that makes fixed payments of increasing amounts over time. Because the annual gifts to ministry are fixed, your family ultimately benefits from any growth in the trust. Low payouts in early years allow the trust to grow, thus allowing protection should the economy produce below-average returns in the future.
Grantor Lead Trust - A grantor lead trust permits you to transfer your cash or assets to a trust that will make gifts to your local church or ministry for a number of years. At the end of the trust term, you receive the assets back from the trust.
