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. Following his advisor's recommendation, Dr. Francis funds a charitable lead annuity trust with assets valued at $800,000. Dr. Francis' trust pays $56,000 (7 percent of the initial fair market value) to KCU each year for 15 years, which will total $840,000. After that, the balance in the trust goes to his children. His gift tax deduction is $698,488* against the $800,000 of assets. Therefore only the difference ($101,512) is subject to gift tax, which is offset against his lifetime gift tax exclusion. After that, the remaining trust assets and all of their growth will pass to his family at zero additional cost in gift and estate taxes. Had Dr. Francis given the $800,000 outright to his children, it would have been a taxable gift.
*Assuming annual payments and a 2.4-percent charitable midterm federal rate.