Charitable Lead Trust

A charitable lead unitrust is a gift plan defined by federal tax law that allows you to transfer assets to family members at reduced tax cost while making a generous gift to Chatham University.

As a donor establishing a lead trust, you irrevocably transfer assets, usually cash or securities, to a trustee of your choice, for example, Chatham University or a bank trust department.

During the lead unitrust's term, the trustee invests the unitrust's assets. Each year, the trustee pays a fixed percentage of the unitrust's current value, as revalued annually, to Chatham University. If the unitrust's value goes up from one year to the next, its payout to the College increases proportionately. Likewise, if the unitrust's value goes down, the amount it donates also goes down. These payments are used for the charitable purpose you designate.

The lead unitrust's term may be for a specific number of years (10-20 years is common), one or more lifetimes, or a combination of the two. Payments are made out of trust income, or trust principal if the trust income is not adequate. If trust income exceeds the charitable payment in a given year, the trust pays income tax on the excess.

When the lead unitrust term ends, the unitrust distributes all of its accumulated assets to family members or other beneficiaries named by you. You may add funds to your unitrust whenever you like.

Benefits of a charitable lead unitrust

• You will qualify for a federal gift tax deduction.
• The beneficiaries of your trust (for example, family members) will receive all of the trust's assets when the trust terminates. Any asset growth that occurs within the trust will be distributed to your trust's beneficiaries free of gift or estate tax.
• Chatham University will receive annual payments from your trust for a term of years, or for another term you designate.
• Your gift will benefit from expert asset management, provided by the same professionals who manage Chatham University's endowment.

Example of a charitable lead unitrust:
Kathy D., class of 1950, and her husband Tony wish to establish a charitable lead unitrust to support Chatham and pass their assets onto their children without having to pay estate taxes. They irrevocably transfer $100,000 in stock, with a cost basis of $50,000, to a trust that pays 6.5% of its value each year to Chatham for their two lifetimes. At the end of the trust’s term, their heirs will receive the all of the assets, free of tax. Kathy and Tony also benefit from a $65,253 tax deduction in the year that they make the gift.