Carnegie Mellon University

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Charitable Lead Unitrust

Make a substantial gift to Carnegie Mellon University in the form of annual payments and transfer the remaining assets to your family or other heirs at reduced tax cost.

The payment to Carnegie Mellon is a percentage of the value of the trust each year.

charitable lead unitrust may be right for you if:

  • You have substantial assets not needed for your own financial security.
  • You would like to provide for your family or other heirs.
  • You would like to save gift taxes, estate taxes, and probate costs.
  • You want your gift to make an immediate difference at Carnegie Mellon University.
  • You could consider a gift of $100,000 or more to benefit Carnegie Mellon and your heirs.
 

 

Features of a Charitable Lead Unitrust

Separate trust
A charitable lead unitrust is a separate, taxable trust governed by an irrevocable trust agreement. You choose the trustee who is responsible for administering the trust and for guiding the investment of its assets.

Make payments to that may vary each year
Your lead unitrust makes payments to Carnegie Mellon University each year equal to a fixed percentage of its value, as revalued annually. If the value of your lead unitrust increases, its annual payments will increase. If the value of your lead unitrust decreases, its annual payments will also decrease. Your lead trust can make payments to more than one charity, if you wish.

You choose the payment rate
You choose the percentage of its value that your lead unitrust must distribute to Carnegie Mellon each year. A payout equal to 5% to 7% of the trust's value is typical. Payments are usually made in annual installments, but semiannual, quarterly, or monthly installments are possible.

Remaining assets to heirs
When your charitable lead unitrust ends, all remaining principal in the trust will be transferred to family members or other heirs that you have named.

Term flexibility
While most lead unitrusts last for 10-20 years, other terms are possible. A lead unitrust can last for one or more lives, for a specific length of time, or for a combination of lives and years. The term length you choose will depend on when you want your heirs to receive their trust distribution, as well as other factors.

Tax benefits

  • Reduce or eliminate gift tax on initial gift if your gift exceeds the then applicable gift tax credit
  • Avoid all gift and estate tax on asset growth

When you transfer assets to your lead unitrust, you make a taxable gift to the individuals who will receive your trust's principal when the term of the trust ends. However, your gift of payments to Carnegie Mellon University earns you a charitable deduction in the year of your gift. This charitable deduction will reduce your taxable gift. In addition, the assets in your lead unitrust are removed from your taxable estate. This means that any growth in the value of your trust's assets during its term can be passed on to your heirs completely free of gift and estate taxes.

Taxation of the trust
A lead unitrust is a taxable trust. However, a lead trust pays income tax only if its income exceeds the amount it pays to Carnegie Mellon University during the year. A careful trustee can balance your lead unitrust's income against its charitable payments in order to minimize its income taxes.

Lead unitrusts for grandchildren
Lead trusts for the benefit of grandchildren present special tax planning challenges related to a tax called the generation-skipping transfer tax. For this reason, many donors choose to create a charitable lead unitrust, because it is easier to plan for generation-skipping transfer tax issues when creating a lead unitrust than when creating a lead annuity trust. Please be sure to discuss the tax considerations with your advisors or us if you are considering including your grandchildren as beneficiaries.

Suitable funding assets
You can fund your lead unitrust with many different kinds of assets. All of the following assets can work well:

  • Cash
  • Securities
  • Closely-held business
  • Commercial property

Assets that you expect to increase substantially in value over time can be especially attractive candidates for transfer into a lead trust. You will want to work closely with your advisors to pick an asset or combination of assets that will best achieve your goals for your gift.

Example

Tracey Preston, 60, is financially secure. Tracey has been wanting to make a leadership gift to Carnegie Mellon University for some time, but has hesitated to part with her assets because of the two young grandchildren she'd like to provide for when they're older.

Tracey is delighted to learn that funding a charitable lead unitrust offers an excellent way to provide generous support to Carnegie Mellon University and pass assets to her young grandchildren.

Tracey chooses to create a $1,000,000 trust that will pay 6% of its value, as re-valued annually, to Carnegie Mellon University each year for 25 years. By making the trust term 25 years long, Tracey delays transferring assets to her grandchildren until they are in their early 30s. By then, she expects them to be mature enough to handle their assets responsibly.

Benefits

  • Tracey's grandchildren will split approximately $1,282,432* when the trust ends.
  • The assets Tracey uses to fund the trust will not be taxed in her estate.
  • Carnegie Mellon University will receive annual payments from the trust that will increase from $60,000 to 76,184* from the trust over 25 years.
  • Tracey will receive a gift tax charitable deduction of $777,640**.

* Assumes the trust assets earn a 7% annual net return.

** Tracey's charitable deduction may vary depending on the timing of her gift.