Charitable lead trust example
Charles Chase would like to make a gift to his two children using assets currently worth $2 million. Because the children are ages 26 and 24, however, he hesitates to have them receive a large amount of money until they have developed more experience in life. Mr. Chase also cares deeply about the work done by Medical Teams International, and he would like to benefit the organization in some significant way.
Accordingly, he uses $2 million worth of stock he thinks will increase in value in the years to come, in order to fund a charitable lead trust that will last for 15 years. Each year during that period of time, it will pay Medical Teams International $120,000. Mr. Chase is hopeful that during the trust’s existence, the value of its assets will appreciate. Whatever their value when the trust ends, those assets will be evenly divided between the two children.
If he had simply given $2 million worth of assets to his children currently, the full amount would have been treated as a transfer for gift tax purposes, which could have resulted in a gift tax of as much as $900,000. Instead, as a result of establishing the trust, he receives a $1,221,440 gift tax charitable deduction, leaving only $778,560 potentially subject to gift tax. He also assures that Medical Teams International will receive payments totaling $1.8 million over 15 years.
Note: The tax calculations assume a 5.6% federal discount rate and payments made quarterly at the end of the quarter.
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The information on this Web site does not constitute legal, financial, tax or estate planning advice and should not be relied upon as a substitute for such advice. Medical Teams International encourages you to seek the counsel of your own professional advisers and values their involvement as you determine how you would like to proceed.