Give to Medicine and Family: Income gift to medicine, assets returned to heirs

With a charitable lead trust, you can create a current income interest for the Medical Foundation and provide for transfer of the trust assets to your children after a specified number of years.

A charitable lead trust is an irrevocable trust that you establish either during life or at death and pays its income, or “lead interest” to the Foundation, typically for a stated number of years. After the trust terminates, the trust assets would be transferred to the beneficiary or beneficiaries you select.

Of the charitable vehicles available to donors, the charitable lead trust is among the most complex. However, a non-grantor lead trust does offer the advantage of delivering excellent estate tax benefits to your family.

Here’s an example of how a non-grantor lead trust works: If you transfer $1 million to a 20-year non grantor charitable lead trust (you do not receive an income tax deduction), the foundation receives an income stream for 20 years. The income or “lead interest,” is a fixed dollar amount or a percentage of the trust value as it is determined each year. In a 5 percent lead trust, the Foundation would receive $50,000 each year or $1 million over the 20-year period. At the end of the trust term, the assets in the trust are then distributed to your children (or even grandchildren with extra planning).

This gift strategy is not motivated by income tax savings but by estate tax savings. Depending on the length of the trust term and the trust payout rate, the ultimate transfer to your heirs can be accomplished at a dramatically discounted rate – with little or no gift and estate taxes paid.