Charitable Trusts — Lead or Remainder?

A charitable trust is an excellent way to accomplish a number of estate planning goals all at once. If giving to a cause dear to you heart is important to you, then creating a trust allows you to do so even after you are gone. In addition, you can structure a trust to provide for both a charity and non-charitable beneficiaries by creating a lead or a remainder split interest trust. Both lead and remainder trusts may also offer tax and probate avoidance benefits as well. Whether you decide on a lead or a remainder charitable trust depends on a variety of factors; however, understanding how each works is essential to making the choice.

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 if the trust is a living trust. An example of a lead trust is as follows: You fund a trust with $100,000. The trust terms call for 10% of the trust assets to be paid out to a charity each year for five years with the remainder interest paid to your children upon termination of the five 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 $1,000 to be paid to your nephew each year for his lifetime. After his death, the remaining trust assets will then pass to the named charity.

If you are interested in exploring tax advantaged strategies for charitable planning, consult with an experienced and qualified estate planning attorney.

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Timothy P. Murphy

Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.

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