By Eric Kinaitis
According to the Association of Fundraising Professionals (AFP), a planned gift is structured and integrates personal, financial, and estate-planning goals with a donor’s giving, regardless if the giving is done while they are alive or at the time of their death. Many planned giving vehicles are available, including bequests, donor advised funds, private foundations and charitable trusts. Often the best results can be attained by combining a vehicle like a donor advised fund with another vehicle such as a charitable lead trust (CLT.)
For those familiar with a charitable remainder trust (CRT), the CLT is its inverse. Like a CRT, a CLT is also an example of a split interest trust. Such trusts are considered “split” because their value is broken into two components: a “lead” interest and a “remainder” interest. Charitable lead trusts work in the following way:
- The trust receives cash or property from the donor.
- At the time the CLT is implemented, the donor specifies:
- the timespan for the trust, such as the donor’s lifetime or a specified term of years;
- the trust’s income beneficiary (typically the charity) who will receive income from the trust (this is income generated by the “lead” interest component);
- the beneficiary (typically the heir(s) of the donor) who will receive the value of the trust at the time specified in item a. above (the “remainder” interest component).
The Benefits of a Charitable Lead Trust
CLTs can be of most impact in an environment of low interest rates. The ideal candidate for a CLT includes:
- A donor who does not need current income from the trust;
- Has charitable intent;
- Is looking for a tax-efficient means to make a future transfer to heirs;
- Is concerned about income tax or estate tax exposure.
Coupling a CLT with a Donor Advised Fund
A charitable lead trust can work in conjunction with a donor advised fund. The donor can name the donor advised fund as the income beneficiary of the CLT. This provides the donor and their family the flexibility as to whom and how they direct their charitable giving.
The donor’s financial advisor can continue to oversee the investment management of the remainder assets.
In short, the DAF enhances the CLT and provides considerable flexibility to the donor to engage in planned giving during their lifetime as well as providing a nest egg for their heirs when the term of the CLT concludes.
At American Endowment Foundation, we look forward to discussing your circumstances and helping determine the right path for you or your client. Contact us or call at 1-888-660-4508.