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If you want to make an impact now at 10,000 Degrees and also provide for your family later, consider setting up a charitable lead trust. You transfer cash or other assets to a trust that makes payments to 10,000 Degrees for a period of time. When the term is up, the remaining trust passes to your family or other beneficiaries you select.
There are two ways that charitable lead trusts make payments to 10,000 Degrees:
A charitable lead annuity trust pays a fixed amount each year to 10,000 Degrees and is more attractive when interest rates are low.
A charitable lead unitrust pays a variable amount each year to 10,000 Degrees based on the value of the assets in the trust. With a unitrust, if the trust's assets go up in value, for example, the payments to 10,000 Degrees go up as well.
Maria would like to support 10,000 Degrees and receive tax benefits. Maria received a windfall amount of income and needs a large income tax deduction to offset the income. Following her advisor’s recommendation, Maria funds a grantor charitable lead annuity trust with assets valued at $1,000,000. Maria’s trust pays $60,000 (6% of the initial fair market value) to 10,000 Degrees each year for 15 years, which will total $900,000. After that, the balance in the trust reverts back to Maria. She receives an income tax charitable deduction of $614,445. Assuming the trust earns an average 8% annual rate of return, Maria receives approximately $1,600,286 at the end of the trust term.
*Based on a 5.2% charitable midterm federal rate. Deductions and calculations will vary depending on your personal circumstances.
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Download My KitSee which type of charitable trust best fits your estate plan with the FREE guide Trusts: Choose From Two Ways to Donate.
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