Charitable Trusts — Lead or Remainder?
May 02, 2012 / By: Charles B. Pyke Jr., Estate Planning Attorney / Category: Wills and TrustsIf you are someone who has chosen to make charitable giving an important part of your life, then you may wish to consider making it part of your estate plan as well. A charitable trust can allow you to provide for your charity long after your death. As with most trusts, a charitable trust may also provide important tax and probate avoidance advantages as well. If you wish to combine charitable and non-charitable giving, that can also be done through the use of a charitable lead trust or a charitable remainder trust.
Charitable lead trust: A charitable lead trust provides payments to a charity (or more than one) for a specific period of time after which the assets that remain in the trust pass to a non-charitable beneficiary. Often, the lead interest (portion that is paid out to the charity) will qualify for a charitable tax deduction. An example of a lead trust is as follows: You fund a trust with $100,000. The trust terms call for 25% of the trust assets to be paid out to a charity each year for three years with the remainder interest paid to your children upon termination of the three year term.
Charitable remainder trust: A charitable remainder trust works in reverse of how a charitable lead trust operates. Both a charitable and non-charitable beneficiary are designated. The non-charitable beneficiary receives a portion or percentage of the trust for a specified period of time after which the remainder interest passes to the charity. In the above example, assume that the trust terms call for $15,000 to be paid to your son each year for five years. After the five year period expires, the remaining trust assets will then pass to the named charity.
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