Charitable Lead Trusts are designed for investors with significant non-cash assets who want to support their favorite causes but not sell or lose control of those assets.
Because this is a legal trust, the documents must be prepared by an attorney. Once the trust has been created, an income-producing asset such as an investment portfolio, a business, farm ground, rental properties, etc. is transferred into the trust but is NOT sold. Instead, the asset itself is retained and can be gifted later to a personal heir or beneficiary of your choice.
Consider the case of Mr. and Mrs. White. The White’s live in the midwest, and Mr. White farms his portion of land that was left to him by his parents when they passed. He is also paid to farm some of his four brother’s land. Mrs. White works as the Executive Director of the zoo in the nearby city, and it is her income that pays their bills. Between her income, and what Mr. White is paid by his brothers to farm their land, they have set aside a nice nest egg in their retirement accounts. Now both in their early 60’s, the income from their portion of inherited land is ancillary. In order to endow a scholarship in the Zoo Science department at Friends, they have placed their land into a Charitable Lead Trust. For the rest of their lives, the income from the farm will flow directly to Friends University. At their passing, the trust will dissolve, and their youngest son – who wants to continue the family farming tradition – will receive it.
It is important to note that Charitable Lead Trusts require a set distribution each year. Because of this, bond funds works well since bonds typically pay out a regular amount. As an illustration, consider the situation of Mr. and Mrs. Brown. They were firm believers in the importance of investment diversification, and therefore kept a bond fund that ranged between 15% to 20% of their investment portfolio at any given time. When their only child was born, they created a Charitable Lead Trust and transferred a portion of their bond portfolio into it. They stipulated that the trust would exist for 18 years, during which time, their alma mater would receive the income. At the end of 18 years, the trust was dissolved and their daughter received the trust assets. She was then able to use that bond income to offset a portion of her college tuition, and have a strong financial foundation upon which to begin her professional career after graduation.
To get more information about the Charitable Lead Trust and determine if it is right for you, please contact the David Alexander – Associate Vice President of University Advancement at 316-295-5648 or send an e-mail to firstname.lastname@example.org.