A charitable lead trust is a gift arrangement in which property is irrevocably transferred by you into a trust. The trust makes payments to Pacific Northwest Ballet (and possibly other charities) for a specified period of time and then distributes the principal to you or to your heirs.
Through a charitable lead trust you can support PNB while significantly reducing gift and estate taxes in passing assets to your children or grandchildren. Alternatively, a charitable lead trust can be set up to provide to you an income tax deduction in the year of the donation while allowing you to receive the trust's assets when it terminates.
Income from a charitable lead trust can either be paid in a fixed dollar amount (under a charitable lead annuity trust) or at a fixed percentage of the annual trust balance (under a charitable lead unitrust). A trust can be set up during your lifetime, allowing you to see the benefit of your gift to the community, or it can be established through your will.
Mr. J funds a lead trust with $1 million, designating Pacific Northwest Ballet to receive $70,000 annually from the trust for 15 years. During the trust’s existence, PNB will receive a total of $1,050,000, with the proceeds going to a designated fund supporting the PNB School. At the end of the 15-year term, the trust's principal is distributed to Mr. J’s two children, currently ages 12 and 10. With the charitable lead trust, Mr. J delays significant gifts to the children until they are more mature, he benefits PNB now, and he potentially reduces the amount that would have been subject to gift tax, if he had transferred the assets directly to his children. Under this arrangement, just $113,860 will be subject to possible gift taxation at the time the trust is established. The rest—including any growth in the trust principal—passes to his children free of gift or estate tax.
(Example uses a discount rate of 2.2%.)
We would be pleased to prepare an illustration showing how a charitable lead trust would work in your situation. There is no cost or obligation and all information will be kept confidential. Please contact Lindsay Krause, Major Gifts and Planned Giving officer, Lkrause@pnb.org or 206-441-3589.