An income producing asset is placed into a trust that makes payments to Clarkson for a certain number of years before the trust terminates and the asset passes back either to the donor or to the donor’s heir(s).
The “lead” in lead trust refers to the payments that are made from the trust to Clarkson for some number of years before the “remainder” ultimately passes back to the donor or to the donor’s heir(s). Some lead trusts are used to generate a large income tax deduction in one year, with the asset passing back to the donor at some point in the future; other lead trusts are used to transfer wealth to heirs and reduce or eliminate estate and gift taxes.
A lead trust may be structured to provide either fixed (annuity trust) or variable (unitrust) income payments to Clarkson. The payout rate, stated in the trust document, cannot be changed once the trust is created and is usually determined by a calculation that maximizes the benefits to the donor and to Clarkson. And though the length of the trust must be defined when the trust is created, there is no limitation on the number of years and/or lives that may be used to determine the term. Like the payout rate, the length of the term is determined by a calculation that maximizes the benefits to the donor and to Clarkson.
Usually a bank or trust company is named as trustee of a lead trust. Almost any asset may be placed into a lead trust, but the asset must generate enough income to make payments to Clarkson each year. Certain lead trusts may be created through your estate to minimize or eliminate estate tax.
Although a donor may or may not receive an income tax deduction for the gifts to Clarkson from the trust, the donor may be eligible to receive recognition for those gifts in Clarkson fundraising campaigns, annual fundraising totals and anniversary reunions.
The Annie Clarkson Society can prepare lead trust financial projections for your review. Contact the Society for help and further information.
Your gifts to Clarkson through a lead trust may count in Clarkson fundraising campaigns, in your next anniversary reunion, and towards Roundtable annual recognition
“Types” of Lead Trusts and Tax and Financial Implications
Two types of lead trusts are most commonly used:
- Qualified grantor lead trust
- Qualified nongrantor lead trust
A “qualified” trust is drafted in accordance with IRS guidelines. The donor is considered the “owner” of a “grantor” trust. The donor is not considered the owner of a “nongrantor” trust.
A donor may place assets in a grantor lead trust, the trust makes gifts to Clarkson for a term of years, and then the assets pass back to the donor. The donor receives an immediate income tax charitable deduction for the total value of the future payments that will be made to Clarkson. The donor is also taxed in future years for the income earned by the trust (oftentimes tax-exempt bonds are used to fund the trust). At the end of the trust term, the assets in the trust pass back to the donor.
A donor may place assets in a non-grantor lead trust, the trust makes gifts to Clarkson for a term of years, and then the assets pass to the donor’s heirs. The donor receives no income tax charitable deduction for assets placed into the trust. The trust is responsible for income tax on earnings to the trust, which is offset by the charitable deduction for gifts made to Clarkson from the trust. The trust is structured so that by the end of the trust term, the assets in the trust may pass to heirs with little or no estate and gift tax due.
|Charitable Lead Trusts||Qualified Grantor Trust||Qualified Nongrantor Trust|
|Provides a significant gift to Clarkson||Yes||Yes|
|Income tax deduction for lead interest at creation of trust||Yes||No|
|Estate or gift tax deduction for lead interest at creation of trust||No||Yes|
|Donor taxable on trust income each year||Yes||No|
|Donor receives income tax deduction for trust payments to Clarkson each year||No||No|
|Trust receives income tax deduction for payments to Clarkson each year||No||Yes|
|Accelerates deduction of future gifts to Clarkson into the year assets are placed into the trust||Yes||No|
|Reduces transfer tax in passing assets to heirs||No||Yes|
|May be created through your estate plan||N/A||Yes|
Process to Create
While every gift situation is unique, there are several steps that may be outlined to help clarify the process.
- You decide. Our philanthropy is a lifelong process. At some point in your life you may wish to express your thanks to Clarkson and help ensure the Clarkson experience, and decide to consider a lead trust.
- We talk. You may wish to speak with the Annie Clarkson Society to make sure that your wishes can be accomplished at Clarkson, and to generate lead trust projections for your review.
- You talk. You may meet with your financial and legal advisors to evaluate the financial projections, draw up the necessary documents and name the trustee.
- You sign. You make a final review and sign the appropriate legal documents with your counsel creating your lead trust.
- You relax. You have just connected yourself with the past and the future as you continue the good work of those who came before you, and you prepare the way for those who will come after you. Enjoy the moment!
What to Expect After Your Plan is Created
The creation of your plan is the start of a new relationship with Clarkson:
- If your plan makes you a member of the Annie Clarkson Society, you will receive letters of welcome.
- As a Society member, you will receive the Society newsletters and annual report each year. You will be recognized as a Society member in the university annual Report of Appreciation as a way for us to say “thank you” and encourage others to plan for Clarkson as well.
- You may be credited for, and receive annual recognition for gifts received from the lead trust.
- Depending on the purpose of your gifts, you may receive named recognition on a plaque or an endowed fund, etc.
- If your gift plan funds a specific project, you might receive annual reports on the progress of that project each year, and you may be able to meet some of the students and faculty that benefit from your gifts.
This Web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift.