Charitable Lead Trusts (Non-Grantor)

What are they?

The charitable lead trust is the opposite of the charitable remainder trust where the lead interest is income provided to charity. With a charitable lead trust, income payments are made initially to a named charitable fund at The Rhode Island Foundation for a term of years or for the lives of individuals. At the end of the term, the remaining assets pass to heirs or other individuals your client designates.

Charitable lead trusts can be established during life or by will. Any appreciation that exceeds the projected rate permitted by the IRS will ultimately pass to heirs free of gift or estate tax. Therefore, when the applicable IRS 7520 rate is low, as is the case when interest rates are generally low, a charitable lead trust can result in significant gift or estate tax savings.

There are two general types of charitable lead trusts:

• With a charitable lead unitrust, your client's named fund at The Rhode Island Foundation will receive a fixed percentage of the trust's assets each year.
• With a charitable lead annuity trust, your client's named fund at the Rhode Island Foundation will receive a fixed dollar amount each year, which is determined at the time the trust is funded.

What are the benefits?

Although the non-grantor charitable lead trust does not provide a charitable income tax deduction, your client will:

• Receive a gift or estate tax deduction depending on when the assets are passed to your client's heirs.
• Pass all of the remaining trust assets on to his/her heirs. The assets are deemed “frozen” for gift and estate tax valuation purposes at the time the trust is funded. Any further growth in the trust will pass tax free to his/her heirs.
• Reduce estate tax liability because a portion of the trust assets will be removed from your client's estate.
• Benefit from expert trust management provided by experienced professionals.
• Make a generous gift to a named fund at The Rhode Island Foundation that will support the causes your client cares about in perpetuity.

How to establish

The Rhode Island Foundation is happy to work with you to draft the trust document for your client. Please contact us for a detailed illustration of a gift’s payout, tax treatment, and benefits.