A nongrantor lead trust created during life does not provide the donor with a charitable income-tax deduction, but neither is he or she taxed on any of the income earned by the trust. At the end of the specified trust term, the assets remaining in the trust are distributed, usually to children or grandchildren.
The principal advantage of the nongrantor lead trust is that—because of the charitable gift- and estate-tax deduction attributable to the value of the payments the University is to receive from the trust—it can significantly reduce or even eliminate (depending on when it is set up), the gift and estate taxes on the value of the assets used to fund the trust. (The longer the term of the trust and the greater the amount of the payments to our institution, the larger the charitable deduction.) In addition, any appreciation in the trust’s value will avoid transfer (gift and estate) taxes when the assets are received eventually by the beneficiary(ies).
How it Works
- Create trust agreement outlining terms of the trust—usually for a term of years
- Transfer cash or other property to trustee
- Trustee invests and manages trust assets
- Trustee makes annual payments to the University
- Remainder transferred to your heirs
- Annual gift to the University
- Future gift to heirs at fraction of property’s value
- Professional management of assets during term of trust
- No charitable deduction, but donor not taxed on annual income