Making Gifts While Providing for Inheritances
Making a Temporary Gift
 Did you know there is a way to make a charitable gift using funds that will
eventually be returned to you or your loved ones? Remarkably, such
a plan exists. A charitable lead trust can be used to achieve what might
at first seem to be conflicting goals. Consider the benefits of a
charitable lead trust:
- You can provide a regular
source of gifts to Junior Achievement that will begin
immediately and continue for as long as you wish.
- Such a gift can serve to
reduce or eliminate income, estate, and gift taxes now and in future
years as well.
- Your gift can be part of a
plan that helps assure future economic security for you and your
loved ones.
- You may be able to provide
your heirs with a larger inheritance than would otherwise be
possible.
There are other gift plans that feature annual income for you or
others you choose. Under such plans, when income ceases, any remaining
funds are transferred to Junior Achievement. Under the terms of a charitable
lead trust, however, the charity receives its gift in the form of
payments from the trust that begin immediately and last for a period of
time you determine. At the end of that time period, assets remaining in
the trust are returned to you or other loved ones you designate. One
result can be to provide an inheritance for loved ones at little or no
after-tax cost.
As you can see, the charitable lead trust can be an especially
attractive way to meet multiple personal and charitable planning goals.
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For example: Richard and Mary would eventually like to
leave $500,000 to their teenage children. They have been told by
their advisors that they will have to leave a much larger amount
to their children for them to realize $500,000 after estate
taxes. As an alternative to a gift to their children through
their estates, Richard and Mary decide to fund a charitable lead
trust for $500,000 to benefit Junior Achievement. The
trust will make payments for charitable purposes each year equal
to 7% of the amount used to fund the trust, or $35,000. The
couple will not owe income tax on the earnings of the trust, as they
are devoted to charitable use. The payment amount will be fixed
and will not change over the term of the trust, which they
decide will be 20 years.
At the end of the 20-year period, after charitable gifts
totaling $700,000 to Junior Achievement have been made, Richard and Mary’s children
will receive $500,000, or whatever other amount remains in the
trust, at a time in life when they may be more responsible and
have greater need. Because of the charitable gifts to be made
from the trust over time, little or no estate or gift tax will
be due when funds are placed in the trust. Even if the assets in
the trust grow in value during the term of the trust, there will
be no additional gift or estate tax due when the children receive
the funds.
To summarize, Richard and Mary have:
- Made a wonderful gift to Junior Achievement
- Provided for a significant inheritance for their children
at a time when they have reached maturity
- Greatly reduced or eliminated gift and estate taxes that
would otherwise be due on the $500,000 originally placed in
the trust, along with the amount of any growth that occurs
in the assets over time
-
Avoided taxes on the income from the property used to fund the
trust that they would have otherwise paid during the period
the trust is in existence
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Replacing Gifts With Life Insurance
Life insurance can be used in many ways to help you make charitable
gifts more effectively. One example is the use of life insurance to
“replace” funds in your estate that have been devoted to charitable
use. The life insurance policy proceeds thus serve to provide an
inheritance for heirs that might not otherwise be available.
For example, you might use the tax savings and all
or a portion of the income generated by a charitable remainder trust or
other gift plan to purchase life insurance benefiting your heirs. That
way, your charitable interests receive the gift you intend, while your
heirs enjoy their inheritance—often at little cost to you or your
heirs. Check with your life insurance professional or other advisors for
additional information regarding this option.
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