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| SPRING 2009 | |
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Over the past year, many of your clients have watched anxiously as their investments lost significant value. Yet many still understand the importance - especially now - of charitable giving. It may frustrate them to feel like it's not possible to support the causes they care about because of the decreased value of their assets.
What if you could offer a way for those clients to make a charitable gift, and have the underlying assets eventually returned to them or their loved ones?
You can, with a charitable lead trust. The opposite of the better-known charitable remainder trust (in which a client receives income for a specific term and remaining assets go to charity) a charitable lead trust pays income to a charity for a specified period of time, after which trust assets revert to the owner or his/her family. Charitable lead trusts combine estate planning with charitable planning by benefiting charity and moving property to the next generation at a reduced transfer tax cost.
There are two types of charitable lead trusts:
- Charitable lead annuity trusts, in which the donor sets a fixed annual gift for charity. This type is more common because the charitable payments are fixed.
- Charitable lead unitrusts, in which the charitable beneficiary receives a percentage of the trust's value each year, resulting in fluctuating benefits depending on the trust's investment returns or losses.
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LEAD TRUSTS WORK BEST FOR CLIENTS WHO:
§ Do not need current income
§ Can afford to set aside a portion of their assets for a period of years
§ Want to make annual gifts to charity
§ Want to reduce estate taxes
§ Want to ensure that their heirs receive an inheritance - just not immediately
§ Own securities, real estate, or other assets that are expected to increase in value over the term of the trust | |
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Today, the combination of low interest rates and depressed asset values create a perfect opportunity for clients to remove wealth from their estates and pass it tax-free to heirs, while at the same time meeting their charitable goals.
Important issues to consider when using charitable lead trusts:
- They are irrevocable - so clients need to be comfortable knowing that the trust cannot be changed or revoked if tax laws change and the trust's assets cannot be used for urgent or emergency needs.
- They work best with low-basis assets because increases in value after the trust is created are not included in the client's estate.
- If the trust's assets go down in value, the benefit to heirs could be less than anticipated because the trust must make its charitable payments regardless of market conditions.
- In best case scenarios, the charitable lead trust's investments should outperform the 7520 rate (2.6% for April 2009, 2.4% for May) which requires diversification and sound investment management.
Community foundations, such as the Hartford Foundation for Public Giving, make ideal recipients of charitable lead trust income. Because the Foundation is in charge of directing the funds to specific causes, the client is in no danger of having the trust taxed in his estate for reasons of retaining control over the disposition of its assets. Also, having the Hartford Foundation as the charitable beneficiary allows your client to support multiple causes with just one gift. |
Call us.
For additional information, to discuss how a charitable lead trust could work for your client, or for gift illustrations, contact Donna Roseman David, senior gift planning officer, at 860-548-1888 or drosemandavid@hfpg.org.
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| Members of the 2009 Professional Advisory Committee |
 Established in 1993, the 27-member Professional Advisory Committee provides assistance to the Hartford Foundation on philanthropic strategies, communications efforts, and giving trends. The committee also advises on opportunities to engage individuals and families in the charitable community. The Committee includes a mix of professionals with deep and varied experience, including estate planning attorneys, CPAs, tax specialists, personal financial planners, and real estate professionals.
New members this year include:
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Morris W. Banks, Pullman & Comley LLC
Nancy Fellinger, Coburn & Meredith, Inc.
Nicole J. Herbst, Wachovia
Douglas E. Kerr, Kerr & Company
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Alan J. Nathan, Nathan Accounting Group
Barbara J. Randolph, Edward Jones Investments
Heather J. Rhoades, Cummings & Lockwood LLC
| To read more about the new members and see who else is on the committee, click here.
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10 Columbus Boulevard, 8th Floor · Hartford, CT 06106
860-548-1888 · www.hfpg.org
Giving Advice is published periodically by Hartford Foundation for Public Giving, the community foundation for the 29-town Greater Hartford region. Hartford Foundation is devoted to building successful partnerships with professional advisers, donors and nonprofits to enhance the quality of life for people in the community.
To access the Planned Giving Design Center, a free, comprehensive, online resource for professional advisors, visit www.hfpg.org/pgdc
For more tools and resources, including past issues of Giving Advice, visit www.hfpg.org/tools. |
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