Planning Tools for Your Estate Plan
Estate Planning Tools
several charitable tools that are often incorporated into estate plans.
These tools also can yield some dramatic tax advantages. They
are described briefly below. Because of your interest in LeSEA, we hope you will consider providing a gift to this ministry.
That decision, of course, should be based on a belief that it is God's
plan of stewardship for you and your estate.
"... but lay
up for yourselves treasures in heaven, where neither moth nor rust destroys
and where thieves do not break in and steal." Matthew 6:20
Gift Annuities are a contractual agreement between a [type] and
the charity, in which the charity receives funds and in return promises
to make lifetime payments to the [type] or to designated beneficiaries.
The charity invests the funds and at the death of the beneficiaries the
residuum will pass directly to charity.
into estate plans, the testamentary annuity is generally funded
with tax encumbered (IRD) assets, and the actual gift annuity agreement
is typically structured with a charitable foundation instead of the specific
charity. Utilized in this manner the gift annuities can eliminate the
IRD tax on these assets, remove a portion of the assets from the estate
for tax purposes, and at the same time provide a benefit to heirs during
this, testamentary gift annuity agreements (typically one for
each beneficiary) would be made between you and a charitable foundation
during lifetime. Your estate documents would specify that upon your death
the gift annuities would be funded, and stipulate that they be funded
through tax deferred retirement assets (or any IRD assets) to the extent
of these assets are available. The annuities would provide a source of
income to personal beneficiaries for their lifetimes. The actual income
paid would be based upon the size of the gift annuity, the age of the
beneficiary, and prevailing interest rates. It is important to note that
most foundations that administer gift annuities set minimum gift thresholds
of at least $10,000 per annuity.
Remainder Trust is a charitable trust that makes payments to specific
beneficiaries for their lifetimes or for a term of years, and
afterward the remainder interest in the trust benefits specified charities.
There are many types of charitable remainder trusts. For simplicity here
we will address the testamentary charitable remainder unitrust (TCRUT).
into estate plans, the testamentary trust is created within the
estate documents, which typically stipulate that at death the trust be
funded, with tax encumbered (IRD) assets, to the extent of these assets
are available. The trust will pay out annually, to heirs, a prescribed
percentage of the trust value. This percent and duration are determined
in the estate documents. At the conclusion of the time set to pay heirs,
a designated charity would receive the remainder of the interest in the
trust. The trust assets grow tax-free. The TCRUT gives the estate an estate
tax deduction on a portion of the assets that go into the trust
With a TCRUT,
a payout percentage (5% or more) is specified within the estate
documents, as is a period of time for the unitrust to make distributions
to personal beneficiaries. Actual payments would be determined by this
payout percentage and the value of the assets in the trust. Many people
choose to pay the unitrust amount to family members for a period of time
that would pay out an amount equal to the initial value of the property.
a trust, which pays 7% for fifteen years, will pay to family
members income, which equals approximately the initial fair market value
of the property. By this method the [type] is able to double the total
benefits from the property once to the family through income payments
and once to the charities through distribution of the principal after
all income payments are completed.
of the Charitable Remainder Unitrust is that the amount remaining
in the trust grows tax-free. For example, if a person selected a 6% payout
trust and the trust investments earned 8%, there would be 2% growth tax-free
each year. This tax-free growth could substantially increase the value
of the trust over time and since the selected 6% payout is based on this
value, distributions to personal beneficiaries would increase proportionally.
of the unitrust to increase both in principal and in income payments
over a period of years is frequently referred to as an inflation hedge.
However, please understand that this benefit does not come without risk.
In the above example, if the growth in the trust falls short of the payout
(6% in this instance), then income payments to beneficiaries would actually
decline with time.
the utilization of Charitable Remainder Trusts, PhilanthroCorp
generally recommend that this option only be considered if at least $100,000
is available to fund this trust, as otherwise administrative expenses
will likely negate much of the benefit.
Lead Trust (CLT) is often described as the reverse of a Charitable
Remainder Trust because the interests going to the charitable and non-charitable
beneficiaries in a CLT are the opposite of a CRT.
With a CLT,
you transfer assets to the trust, which pays one or more charities an
income stream for a period of time. When the period of time you specify
ends, the remaining trust property returns to you or goes to other non-charitable
beneficiaries, such a your spouse, children, grandchildren, or anyone
else you name in the trust.
Testamentary Charitable Lead Annuity Trust
The lead trust
is an excellent means for transferring principal to family members
at a future time and saving substantial estate taxes while effecting this
transfer. The [type] directs that a portion of the estate be set aside
into the lead trust. For the selected period of time the trust pays income
to charity. After the term of years, the principal is distributed to family members. Since a substantial income payment will be made to charity, there
can be a very large estate tax charitable deduction.
The [type] selects
the initial trust payout percentage, the term of years and the percent
of the estate to be allocated to the trust. The initial lead trust payout
percentage is multiplied times the initial net fair market value and this
amount is then distributed that year to charity. If there is any appreciation
or accumulation in excess of the income amount, this can be retained in
the trust and will eventually be passed through to family members. The
Treasury tables are used to value the charitable deduction based upon
the annuity percentage and the term of years selected. For many lead trusts,
one-half to three-fourths of the initial value of the trust may be taken
as an estate tax charitable deduction. In fact, these can be structured
in a manner that the full value of the initial trust can be taken as a
The major benefit
of the lead trust is the ability to transfer appreciating property to
family members at very low tax cost. The property is initially valued
as of the date of creation of the trust and, as noted above, the trust
may enjoy a very substantial charitable deduction. If the property appreciates
substantially during the term of years, the value distributed to family members may be very much greater than the initial value of the trust.
Many families have used lead trusts to transfer very large and valuable
properties to family members at little or no tax cost. This trust is often
used in conjunction with other trusts that provide income (such as a charitable
remainder trust) while the family is waiting for the lead trust principal.
It can be a truly dramatic way to pass great wealth to family members
with little or no estate tax cost.
services are provided from LeSEA at no cost to
you. It is their philosophy to assume a servant's role in this
process, seeking to be a blessing to you. learn how to get started
a free phone conference with one of PhilanthroCorp's estate planning specialists,
call 800-876-7958 ext 2127 or email (click
of Estate Planning
Services | Admin Login
| Contact Us
on this site is NOT intended for legal advice. See