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You're considering a gift in partnership
with the Foundation > Your planning objective is estate
preservation > You want to reduce gift and estate taxes
rather than income tax
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A lead trust holds appreciating assets,
pays income to one or more Baptist causes for a period of years,
and then passes the remaining principal back to you – the version
known as a grantor lead trust – or to beneficiaries
you have selected – the non-grantor lead trust. The
non-grantor lead trust offers you more significant tax benefits,
and we will primarily focus on its features here.
The non-grantor lead trust reduces the cost of
passing property to your heirs in two ways. First, the value, for
estate and gift tax purposes, of the assets you place in your lead
trust will be reduced by the present value of the income that the
trust will pay to Baptist causes. Second, the taxable value of the
lead trust’s assets is fixed at the time you establish the
trust – any subsequent increase in the value of the assets
will pass to your heirs outside your estate and thus free of estate
or gift tax.
This combined reduction in the taxable value of the assets means that your family can often receive more from an estate plan containing a non-grantor lead trust than they could from an outright bequest from you.
The lead trust also offers you these additional features:
- It can be funded with shares in a growing family business, thus lowering the tax cost of passing ownership on to the next generation .
- The income earned by a non-grantor lead trust while it is in operation is not taxable to you.
- The trust can run for a term of years or for your lifetime.
- The lead trust is the only income-gift that
delivers immediate benefits to Baptist causes.
- The longer the lead trust pays Baptist causes
income, and the more income it pays Baptist causes, the larger
your estate and gift tax deduction will be.
- You or a financial advisor can serve as trustee,
or the Foundation can serve.
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Example
Your business is on a growth track, and your children are learning the ropes fast. Your planning priority is to keep the enterprise that you worked so hard to establish intact for them to inherit and enjoy.
As your gift to your church, you place $500,000
worth of your company’s stock in a non-grantor lead trust.
The trust will pay your church a 6 percent annuity for 20
years. You estimate that you will have additional assets totaling
$1,500,000 in 20 years and that your assets will grow at an
average rate of 5% per year. You have already given your children
the maximum that may be transferred free of gift and estate
tax.
Here are the benefits to you and your family
of the lead trust, compared with those of a direct bequest
to the children and no gift for the church:
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Comparison
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Lead Trust
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No Gift
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Principal
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$500,000
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$500,000
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Annuity to your church
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$30,000
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-0-
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Present value of 20 years’ annuity
payments to the church
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$312,940
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-0-
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Gift Tax (paid by donor in 2002)
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$70,453
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-0-
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Value of lead trust in 2022
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$1,507526
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-0-
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Donor’s taxable estate in 2022
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$1,429,547[1]
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$3,914,749[2]
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Total federal estate tax
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-$553,387
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-$1,791,862
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Net distribution from estate
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$876,160
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$2,112,877
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Add lead trust balance
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+$1,507,526
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-0-
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Total distribution to family
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$2,383,686
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$2,112,887
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Total distribution to the church
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$600,000
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-0-
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[1]: Assets of $1,500,000 minus $70,453 gift tax paid in 2002. The $1,507,526 balance of the lead trust is excluded from the donor’s estate.
[2]: Appreciated value of $500,000 plus additional assets of $1,500,000.
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Click here to
calculate the
benefits a lead trust
would give you.
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How Do I Create a Charitable Lead Trust?
Setting up a charitable lead trust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we can provide you with an initial draft of the lead trust agreement for review by you and your attorney. Once your trust agreement is signed, you can fund your lead trust by transferring assets to your trustee.
Email us, complete the
personal illustration form, or call
us at 502-489-3533 so that we can assist you through every step
of the process.
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