By Crystal Langdon

www.crystalclearfinances.com 

Creating trusts can provide avenues to maximize your tax deductions, eliminate capital gains, and in many cases, secure an income stream for life. In past articles I have discussed the advantages of Donor Advised Funds, Charitable Gift AnnuitiesCharitable Remainder Trusts. This month I will explain the advantages of Charitable Lead Annuity Trusts (CLAT) and Charitable Lead Uni-Trusts (CLUT).

Charitable Lead Trusts are designed for individuals who desire to financially support a charitable organization, such as NYFRF, during their lifetime, while still leaving an inheritance to their family. The donor can gift property, cash or income producing assets to an irrevocable trust and list NYFRF to receive an annual income stream for a specified period of time. Once the time period ends, the assets within the trust revert back to the donor or pass to the donor’s beneficiaries.

Charitable Lead Annuity Trusts (CLAT) and Charitable Lead Uni-Trusts (CLUT) provide two alternatives when deciding the amounts to be donated and received annually. A Charitable Lead Annuity Trust (CLAT) allows the donor to make a one-time contribution to the trust. It also sets in place an annual amount that the Charity will receive. A Charitable Lead Uni-Trust (CLUT) allows the donor to contribute annually to the trust. It also provides the designated Charity an income stream based upon a percentage of the fund. Both the CLAT and the CLUT provide the donor with immediate tax deductions on the amounts that the Charity will receive.

Let’s look at an example. Last month I introduced Tim and Julie, who had worked hard all their life, but believed that they could not afford to give to NYFRF because of their limited income. Tim had stock that he had purchased many years ago, and he was receiving a small income stream from it. Because the dividends stream was low, and he would have to pay capital gains if he sold it to reinvest in a higher paying investment, Tim felt trapped by the stock. He decided to donate the stock to a Charitable Remainder Trust. This allowed him to receive an immediate tax deduction, eliminate all capital gains tax and receive an increased income stream for life. Since they were receiving more income then before and able to bless NYFRF with the remainder of the trust upon their deaths, Tim and Julie were happy with this decision.

Let’s pretend that Tim and Julie do not need the income stream from their appreciated stock, but they could use the tax deduction. They also would like to make an immediate donation to NYFRF and make sure that an inheritance is left for their children and grandchildren. By placing the stock into the Charitable Lead Annuity Trust, NYFRF would begin to receive an annual income stream to help pay for the expenses they are facing and to help NYFRF continue the ministry. Tim and Julie would have the benefit of an immediate tax deduction on the income stream NYFRF receives, and they would have the satisfaction of knowing they are leaving an inheritance for their children, while helping NYFRF.