Charitable Lead Trusts

Charitable lead trusts can be a good way to preserve assets for yourself or your beneficiaries while making annual gifts to Algonquin Arts. They work in most, but not all, ways in an opposite manner from life income gifts. Assets are placed into a charitable lead trust and the trust makes annual payments to Algonquin Arts for a specified term of years, often 10 to 15. After that, the assets are returned either to you or to your individual beneficiaries. These trusts are an excellent way to transfer appreciating property (preferably income-producing) to beneficiaries while supporting the Algonquin. They are a particularly effective means of reducing, or possibly eliminating, the estate and/or gift tax on the eventual transfer of these assets to your beneficiaries.

There are two types of charitable lead trusts: a grantor lead trust or a nongrantor lead trust. Both can be either a lead annuity trust (paying a fixed amount to the Algonquin) or a lead unitrust (paying a variable annual amount to the Algonquin, based on a stated percentage of the value of the trust’s assets).

Grantor Charitable Lead Trust

1. You (the grantor) donate assets to a trust.
2. The trust makes payments to the Algonquin for a term of years.
3. If the trust is qualified (it pays the charity either a unitrust amount or a guaranteed annuity amount), you can claim an immediate income tax charitable deduction for the payments that the Algonquin will be receiving.
4. You are responsible for any tax due on the trust’s income. Thus, it is often a good idea to fund the trust with tax-exempt securities.
5. At the end of the term, the trust’s assets are returned to you.

Nongrantor Charitable Lead Trust

1. You place assets in a lead trust, either during your lifetime or by will.
2. The trust makes payments to the Algonquin for a term of years.
3. At the end of the term of the trust, the assets pass to the beneficiaries you name.
4. Gift and estate taxes that would be due could be reduced, often considerably, by the value of the Algonquin’s lead interest.