What if you could make a substantial gift to Woman's Missionary Union over a period of years, while at the same time insuring that your property would ultimately return to you or your loved ones? A charitable lead trust may be the answer.

A charitable lead trust is a trust that allows you to use assets that you own to provide an income stream to Woman's Missionary Union for a set number of years. When the trust ends, the assets return to you or your loved ones. This trust is called a lead trust because the charity leads off by receiving income payments during the trust term.

We will first review how a lead trust works when you want the assets to return to you, the donor. This lead trust is technically called a grantor lead trust. Next, we will summarize how a lead trust works when you want the assets to pass to your children or other loved ones when the trust ends - technically, a non-grantor lead trust.

Grantor Lead Trusts
You transfer cash or other property to a trust that makes payments to a charitable organization, like WMU, for a set period of time. You decide the time period and the payout rate the trust will use. At the end of the trust term, the trust distributes the assets back to you.

Benefits of a Grantor Lead Trust
You make a significant impact on the future of Woman's Missionary Union.You are entitled to an income-tax deduction for the present value of the income payments to WMU over the trust term, and you receive this deduction in the year the trust is created. Your assets are returned to you when the trust ends.

EXAMPLE:
Laura Foster is 55 years old and has been WMU director in her church for the past 5 years. Laura has always been active in WMU. She has led her WMU group to be particularly active in the Christian Women's Job Corps. Laura has a heart for helping struggling women set and achieve their own goals, while also helping them to know Christ. Laura wants to do her part to insure WMU will continue this program and similar programs in the future.

Laura has a $50,000 certificate of deposit maturing and would like to give the proceeds to WMU to help with its ministries to women. However, Laura is single and is concerned she might need this asset for her retirement. Then she learned about a grantor lead trust.

Laura decided she could make a significant gift through a lead trust because she would get the money back at the end of the trust term, thus providing her with more financial security. She decided to fund a charitable lead annuity trust with $50,000 in cash from her maturing CD. Laura chose an annuity trust rate of 5% and a trust term of 10 years. This trust will pay WMU $2,500 (5% of $50,000) each year for ten years. Over the course of 10 years, WMU will receive a total of $25,000. At the end of 10 years the trust will terminate, and Laura will receive her $50,000 asset when she is 65 years old.

In addition to making a significant contribution to WMU and receiving her assets back at the end of the lead trust term, Laura will receive an income-tax deduction of $18,057 which she can use to offset up to 30% of her adjusted gross income this year. If Laura cannot use the entire deduction this year, she can carry forward any unused deduction up to five additional years.

If you are treated as the owner of the trust for tax purposes (to enable you to receive an income tax deduction), you will be taxed on all the trust's income, even though WMU is receiving the income. However, if the trust is funded with, or invested in tax-exempt securities, you are still the owner of the trust, but you would not have to pay any tax because the income is tax-exempt. This would also be the case if you funded the trust with cash and the trustee of the trust invested the cash in tax-exempt securities.
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Non-Grantor Lead Trusts
The non-grantor lead trust works much like the grantor lead trust during the trust term. However, when the trust term ends, the assets pass to your heirs or other loved ones instead of reverting to you.

Donors interested in non-grantor lead trusts are generally charitably-minded individuals who have large estates and are looking for ways to reduce or eliminate gift and estate taxes. Generally, income tax advantages are not a part of this plan. With a non-grantor lead trust, the donor would not be taxed on the income; consequently, donors often use appreciated assets to fund non-grantor lead trusts. Donors who create lead trusts choose to let a significant part of what they cannot keep pass to charitable organizations, like WMU, instead of passing to the federal government in the form of gift or estate taxes.

Benefits of a Non-Grantor Lead Trust
You can make a significant impact on the future of Woman's Missionary Union. You can pass substantial assets to your heirs, while greatly reducing or even eliminating gift or estate taxes you would otherwise pay. If there has been growth in the principal during the trust term, this growth also passes to your heirs free of gift or estate tax.

EXAMPLE:
Dee and George Brown are both 61 years of age and are active supporters of WMU. They have been involved in several mission trips sponsored by their church, and Dee has always been active in WMU. The Browns have one son who is a pastor and a daughter and son-in-law who are foreign missionaries. George has been successful in the real estate business; Dee inherited a large securities portfolio when her father died. The Browns estimate that they have assets of approximately three million dollars.

The Browns' attorney told them they could pass up to $1,300,000 in 1999 to their children without paying gift or estate taxes. However, the first dollar passing to family over that amount will be taxed at 37%, moving rapidly up to rates of 55% or higher. The Browns feel they have been blessed in so many ways. They want a portion of their estate to pass to WMU at their deaths instead of paying substantial taxes to the government. The Browns' children support their plan to leave assets to WMU.

After hearing about a lead trust at a seminar sponsored by WMU, the Browns called their attorney to talk about creating one to benefit WMU. After several meetings with their attorney and conversations with a representative from the WMU Foundation, the Browns decided to use $500,000 in securities that they own to create a charitable lead annuity trust that would pay 8% annually to WMU for 15 years. This means WMU will receive $40,000 (8% x $500,000) each year for 15 years. At the end of the trust term, the remaining assets in the trust will be divided equally between the Browns' children.

Over the next 15 years, WMU will receive a total of $600,000 from the Browns' lead trust. In addition to leaving a lasting legacy to WMU, the Browns receive a gift tax deduction for the present value of the gift to WMU, which is approximately $383,465. Because the Browns have made a completed gift to their children by creating a lead trust, gift tax would ordinarily be due on the entire amount used to fund the trust-$500,000. However, since there is a significant gift to WMU during the trust term, the Browns will only owe gift tax on $116,535, the present value of the future gift to their children. If the Browns have not used their unified tax credit* amounts, the gift tax on that $116,535 could be offset against those credit amounts, resulting in no gift tax being owed.

The Browns were pleased to know that any increase in the value of the trust assets will pass to their children free of estate and gift tax at the end of the trust term. They feel like everyone wins through a lead trust. George and Dee are able to make a substantial gift to WMU while greatly reducing gift taxes they would otherwise have owed. Their children will receive the trust assets after 15 years, and the entire family will be able to be a part of seeing how this gift will be used by WMU to support missions.

*Each individual has a credit that can be used to offset estate or gift taxes incurred by that person as a result of gifts or bequests. In 1999, the unified tax credit permits the transfer of $650,000 without gift or estate tax being incurred under the existing tax rates. Due to recent tax law changes, the amount an individual can transfer free of gift or estate tax will increase each year until it reaches $1,000,000 in 2006.
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Making Your Goals Become Realities
As you can see, charitable lead trusts provide many ways to help accomplish your goals and substantially benefit WMU and missions. If you would like more information about gift opportunities through charitable lead trusts, please call or write:

There is no obligation, of course, and all inquiries are kept strictly confidential.

This information in not intended as specific advice. Consult your attorney when considering any legal matter.
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