Jaya Lalita's Refundable Endowment model - Charitable Lead Trust

[Guest guest]

Noma Petroff wrote:

 

> Mark Middle Mountain wrote:

>

>

>> > Jaya Lalita prabhu, a Prabhupada disciple who is also a trained

>> > economist,

>>

>> > suggested a simple funding model for Gita-nagari Farm several years

>> > ago. Under

>>

>> > her model, patrons would be invited to make a ten-year

>> > interest-free loan to

>> > the

>> > farm. The funds would be deposited and, as in other endowments,

>> > the interest

>> > generated would be used to pay off the land costs of Gita-nagari.

>>

>>

>> I am not sure, but that may be called a Lead Trust. Been too busy

>> to write - one Farmer's Market we sell at has started and the second

>> starts in 2 weeks.

>>

>> Someone really interested in the topic could check the following

>> site for an idea of how to approach large donors.

>>

>> http://phillips.exeter.edu/giving

>>

>> Keep clicking thru until you find a pade where Lead Trusts and a lot

>> of other options are detailed.

>

> A WAY TO REDUCE TAXES ON TRANSFERS TO HEIRS: CHARITABLE LEAD TRUSTS:

>

> A charitable lead trust is the reverse of a charitable remainder

> trust. Instead of generating income to the donor, a charitable lead

> trust pays a fixed percentage of the trust assets to Phillips Exeter

> Academy for a specified term of years. When the trust expires, the

> principal is returned to the donor or a designated beneficiary.

>

> With this vehicle, you are able to remove a significant asset from

> your estate, thereby reducing the potential gift or estate tax. The

> longer the period of years and the higher the payout rate, the greater

> the tax savings. The assets placed in the trust are expected to

> appreciate over time, but that appreciation is not subject to further

> gift or estate tax when the trust terminates. This vehicle allows you

> to make a significant gift to Exeter, while also preserving assets for

> your heirs.

 

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I did a search on "charitable lead" and I got many hits, including the

following brief explanation:

 

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Randy Carver Financial Services

 

CHARITABLE LEAD TRUSTS

 

Charitable lead trusts are useful income, gift and estate tax planning

tools for charitably inclined taxpayers. These irrevocable trusts offer

benefits worthy of consideration by many.

 

The easiest way to understand a charitable lead trust is to compare

it to its "kissin' cousin," the charitable remainder trust. Simply

stated, in a charitable remainder trust the grantor donates an asset to

the trust. The trust pays a distribution, computed according to a

pre-set formula, to the grantor (or some other non-charitable

beneficiary selected by the grantor). The cash distributions continue

for a specified period of time or for the life of the grantor (or other

non-charitable beneficiary) after which whatever is left in the trust

goes to the charity.

 

Charitable lead trusts are a mirror image of this structure. In a

charitable lead trust (also sometimes call a charitable income trust or

a front trust) the grantor donates cash or an income-producing asset.

The trust pays a distribution, according to a formula spelled out in the

trust, to the charity for a specified period of time. After that period

of time the principal of the trust is paid to the non-charitable

"remainder beneficiary" designated by the grantor. Typically, the

remainder beneficiary is a member of the grantor's family, other than

the grantor or his spouse.

 

Charitable remainder trusts involve a gift and income tax deduction

for the gift to the charity. The deduction is equal to the present

value, computed per IRS table, of the charity's future interest.

Although there is always a gift tax dedcution involved in a charitable

lead trust, there may or may not be an income tax deduction. An income

tax deduction is available only if: 1) the grantor is taxed on the

income of the trust (according to the so-called "grantor trust rules")

and 2) the distribution to the charity is in the form of a guaranteed

annuity interest or a unitrust interest. The annuity and unitrust

interests are substantially the same concepts as are invloved in the two

types of charitable remainder trusts, except there is no 5% minimum

invloved. The gift tax (and income tax, if applicable) deduction is

computed based on the present value, again per IRS tables, of the

charity's income interest. You should note that for any trust (either

lead or remainder) established after May 1, 1989 the interest rate used

to calculate the present values is adjusted each month. The rate equals

120% of the federal midterm rate (the same rate applied to a number of

other IRS computations). This rate is published monthly by the IRS.

 

With a charitable remainder trust, unless you are insurable the

donation to the charity must come at the expense of the heirs. If the

principal is going to charity, then it can't go to the kids, too. With a

charitable lead trust, if you can afford to give up the income, you can

pass an income-producing (and potentially appreciating) asset on to your

heirs and satisfy charitable desires. The gift of the remainder interest

is valued at the time of the gift (using the same IRS tables) rather

than when the remainder beneficiary receives his interest. No $10,000

exclusion is permitted.

 

Randy Carver Financial Services

 

http://www.bullmkt.com/trusts.html