Charitable Lead Trusts
If you want to benefit from the tax savings that result from supporting Northwestern, but you don’t want to give up any assets that you want your family to receive someday, you may want to consider a charitable lead trust. This gift arrangement enables you to make a significant gift to Northwestern and transfer assets to one or more beneficiaries, usually children or grandchildren. Income payments from the trust would be directed to Northwestern for a set number of years, after which the remaining assets transfer to your beneficiary or beneficiaries.
There are two ways charitable lead trusts make payments:
A charitable lead annuity trust pays a fixed amount each year to Northwestern.
A charitable lead unitrust pays a variable amount each year based on the value of the assets in the trust. With a unitrust, if the trust’s assets go up in value, the payments to Northwestern go up as well. At the end of the trust period, the principal is transferred to you or heirs.
In addition to the annuity and unitrust variations, a CLT may be created as a “grantor” or “non-grantor” trust. In a “grantor” charitable lead trust, the trust principal is paid back to you, the grantor (or your estate), at the end of the term. A transfer to this type of trust provides a current income tax deduction. In a “non-grantor” charitable lead trust, the remainder interest in the trust typically passes to your children or other family members at the end of the term. If the non-grantor charitable lead trust is created during your life, you may receive a gift tax deduction for the value of the charitable income interest.
George would like to support Northwestern and provide for his children. Following his adviser’s recommendation, George funds a charitable lead annuity trust with assets valued at $2,500,000.
George’s trust pays $175,000 (7 percent of the initial fair market value) to Northwestern each year for 15 years, which will total $2,625,000. After that, the balance in the trust goes to his children. Assuming a 6 percent investment return, the children will receive approximately $1,918,101.
His gift tax deduction is $2,182,775* against the $2,500,000 of assets. Therefore, only the difference ($317,225) is subject to gift tax, which is offset against his lifetime gift tax exclusion. The remaining trust assets and all growth will pass to his family at zero additional cost in gift and estate taxes. Had George given the $2,500,000 outright to his children, it would have been a taxable gift.
*Assuming annual payments and a 2.4 percent charitable midterm federal rate.
Calculate Your Benefits
Submit a few details and see how a charitable lead trust can benefit you.
- Contact Northwestern Gift Planning at 800-826-6709 or firstname.lastname@example.org to talk about supporting Northwestern by setting up a charitable lead trust.
- Seek the advice of your financial or legal adviser.
- If you include Northwestern in your plans, please use Northwestern’s legal name and federal tax ID number.
Legal Name: Northwestern University
Address: 633 Clark Street, Evanston, Illinois 60208
Federal Tax ID Number: 36-2167817
The information on this website is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income taxes include federal taxes only. State income/estate taxes or state law may impact your results. Annuities are subject to regulation by the State of California. Payments under such agreements, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association. A charitable gift annuity is not regulated by the Oklahoma Insurance Department and is not protected by a guaranty association affiliated with the Oklahoma Insurance Department. Charitable gift annuities are not regulated by and are not under the jurisdiction of the South Dakota Division of Insurance.
This is not legal advice. Any prospective donor should seek the advice of a qualified estate and/or tax professional to determine the consequences of his or her gift.
Annuities are subject to regulation by the State of California. Payments under such agreements, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association.