Charitable Lead Trusts

Under the most common form of a charitable lead trust, a donor irrevocably transfers assets to a trustee and has income from the trust paid to Pacific Northwest Ballet either for a certain number of years or until the donor's death. At the end of the trust term, the principal is distributed to heirs at greatly reduced estate and gift tax rates.

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. A trust can also be established through your will.

The typical form of charitable lead trust provides no income tax benefits, but allows you to transfer assets to your heirs at substantial estate tax savings. Another, less common sort of trust returns the remaining principal to you and has different tax effects.

Planned Giving at Work
Mr. J funds a lead trust with $1 million, designating Pacific Northwest Ballet to receive $75,000 annually from the trust for 15 years. The proceeds go to a designated fund supporting the PNB School. At the end of the 15-year term, the trust's principal is distributed to his two children. Under this arrangement, just $177,660 will be subject to gift tax 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 the August 2008 discount rate of 4.2%.)

We would be pleased to prepare a free illustration showing how a charitable lead trust would work in your situation. Please contact Lilah Ostmann, Major Gifts Officer, at 206.441.3594 or LOstmann@pnb.org for more information.

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