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Charitable Lead Annuity Trust

Remainder Factor

The remainder factor is the fraction of the funding amount of a planned gift that is considered a charitable contribution, expressed as a decimal. The remainder factor multiplied by the funding amount equals the value of the charitable contribution.

For example, if the remainder factor for a charitable remainder unitrust is .24561 and the unitrust is funded with $100,000, the value of the charitable contribution is .24561 x $100,000 or $24,561.

Non-Grantor Lead Trust

The non-grantor lead trust is the most common form of charitable lead trust.

During the trust term, typically a fixed number of years, the trust makes payments to one or more charities. When the trust terminates, it distributes its remaining principal to individuals named by the donor, typically family members.

A non-grantor lead trust is treated as an independent taxable entity that is responsible for all of its own taxes and accounting. It pays tax on income, including realized capital gain income, that is in excess of its charitable payments.

Charitable Lead Trust – Super Grantor

A super grantor charitable lead trust is a charitable lead trust that has both grantor trust and non-grantor trust characteristics. Sometimes called a “defective” lead trust, the trust distributes its remaining principal to the donor’s heirs when it terminates. However, the donor retains just enough rights in the trust for the trust to be considered a grantor trust for income tax purposes and a non-grantor trust for gift and estate tax purposes. As a result, the donor pays tax on the trust’s taxable income, but the trust’s assets are out of the donor’s estate. The donor receives both an income tax deduction and a gift tax deduction in the year the trust is created. Because the gift is deemed to be “for the use of” the charity, the income tax deduction is subject to IRS 20%/30% limitations.

Charitable Lead Annuity Trust - Non-Grantor

A non-grantor charitable lead annuity trust is a gift plan defined by federal tax law that allows an individual to transfer assets to family members at reduced tax cost while making a generous gift to a charity.

The donor irrevocably transfers assets, usually cash or securities, to a trustee of her choice, such as a bank trust department. The donor receives a gift tax deduction equal to the value of the income stream promised to the charity. Unlike income tax deductions, gift tax deductions are not subject to IRS limitations.

Charitable Lead Annuity Trust - Grantor

A grantor charitable lead annuity trust is a gift plan defined by federal tax law that allows an individual to retain ultimate possession of an asset while making a generous gift to charity.

The donor transfers assets, usually cash or securities, to a trustee of choice, such as a bank trust department. The donor receives an income tax deduction equal to the value of the income stream promised to the charity. Because the gift is deemed to be “for the use of” the charity, the deduction is subject to IRS 20%/30% limitations.

Charitable Lead Annuity Trust – Balloon Payment or 'Shark Fin' Trust

A balloon charitable lead annuity trust is a type of charitable lead annuity trust. Sometimes called a “shark fin” trust, it shares all characteristics of a standard charitable lead annuity trust except that its payments to charity are not the same fixed amount every year.  Instead, the payments are a relatively small amount during all but the final year or final few years of the trust, and then increase dramatically to a large “balloon” amount to be paid in the final year or final few years of the trust.

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