Establishing a charitable lead trust can help you transfer assets to your heirs with limited taxation, and realize substantial gift and estate tax benefits while supporting KCU.
There are two ways that charitable lead trusts make payments to KCU:
A charitable lead annuity trust pays a fixed amount each year to KCU and is more attractive when interest rates are low.
A charitable lead unitrust pays a variable amount each year based on the value of the assets in the trust. With a unitrust, if the trust's assets go up in value, for example, the payments to KCU go up as well.
Scenario: Dr. George Francis
Dr. George Francis would like to support KCU and provide for his children. Dr. Francis received a windfall amount of income and needs a large income tax deduction to offset the income. Following his advisor's recommendation, Dr. Francis funds a grantor charitable lead annuity trust with assets valued at $1,000,000. Dr. Francis's trust pays $70,000 (7 percent of the initial fair market value) to KCU each year for 15 years, which will total $1,050,000. After that, the balance in the trust reverts back to Dr. Francis . He receives an income tax charitable deduction of $873,110. Assuming the trust earns an average 6 percent annual rate of return, Dr. Francis receives approximately $767,240 at the end of the trust term.
*Assuming annual payments and a 2.4-percent charitable midterm federal rate.