Trusts

Charitable Remainder Trust.

A Charitable Remainder Trust is established so that trust income benefits the donor or another beneficiary for a set number of years (not to exceed 20) or life, either with a fixed or variable income. When the trust term expires, the remainder of the trust is transferred to the SBL Foundation.

Charitable remainder trusts offer a great deal of flexibility. Payments may be made to the donor for life and then may be directed to a spouse or another beneficiary after death. A charitable remainder trust may be set up during one's lifetime or may be established by a will. The eventual distribution to the charity will take effect only at the death of the trust's income beneficiaries.

If donors place highly appreciated securities in the trust, the trustee can sell them without having to pay the capital gains tax realized on the profits of the sale. Low-yielding stocks can be sold and the proceeds reinvested to produce higher income for the income beneficiary. By creating a charitable remainder trust, one can enjoy a number of benefits, including professional management of the assets in the trust and a degree of financial protection. Additionally, the donor will likely receive a charitable income tax deduction depending on his/her age, or the length of the trust term, payout rate, frequency of payments, and applicable federal discount rate. Creating one of these trusts frequently enables donors to realize greater disposable income.

SUMMARY FOR CHARITABLE REMAINDER TRUST:

Document that creates:                Trust

Revocable?                                  No, but may change charitable beneficiary

Ultimate beneficiary?                    To benefit charities of choice Lifetime beneficiary?

Donor or others Annual benefit:    Variable

 

Charitable Lead Trusts.

A charitable lead trust is the reverse of a charitable remainder trust. Under a charitable lead trust, which can be created by a trust or will, donors can provide that a set or flexible payment be made to Sarah Bush Lincoln for a term of years, after which the principal is paid to the donors or another beneficiary.

A charitable lead trust allows the ultimate transfer of the property to be made at a lower transfer tax cost. Charitable lead trusts are most sensible for a donor whose family can afford to relinquish the income from the gifted property during the term of the lead trust.

It is possible to establish a lead trust either during one's lifetime or in a will. A charitable lead trust can substantially reduce the estate taxes payable at the time of death because of the charitable deduction for SBL’s charitable interest in the payment. The value of the charitable interest depends on the length of the trust and the amount to be paid out each year. The saving in estate taxes may mean that family members receive substantially more than if the securities/cash was left to them.

This trust is especially useful for property with the capacity for appreciation. Donors do not receive a charitable deduction for federal income tax purposes on the creation of a lead trust unless they choose to be taxed on the trust income (i.e., the income that will be paid to Sarah Bush Lincoln). Some people may find that the chance to take a federal income tax deduction in the initial year outweighs the disadvantage of paying taxes on the trust's income in later years. Donors can negate the tax impact by funding the lead trust with tax-exempt securities.

SUMMARY OF CHARITABLE LEAD TRUSTS:

Document that creates:                Trust or will

Revocable?                                  No

Ultimate beneficiary?                    Individuals selected by donor

Lifetime beneficiary?                    To benefit charities of choice

Annual benefit:                            Fixed or variable

A charitable remainder trust pays the donor (and/or another beneficiary) either a fixed or variable income for the beneficiary's life or for a fixed term not exceeding 20 years, or a combination of the two. When the trust term expires, the remainder is then distributed to a charitable beneficiary. Charitable remainder trusts offer a great deal of flexibility. Payments may be made to the donor for life and then may be directed to a spouse or another beneficiary after death. A charitable remainder trust may be set up during one's lifetime or may be established by a will. The eventual distribution to the charity will take effect only at the death of the trust's income beneficiaries.