Gift Planning to Benefit Heirs and Penn

A Charitable Lead Trust is an attractive way to provide an annual stream of income to Wharton and, at the end of the trust’s term (a set number of years or for the life of the donor), distribute the principal to whomever the donor chooses, typically children or grandchildren.

At this time, deductions for charitable lead annuity trusts (CLATs) are at a very high level, making them a more attractive giving option. One type of CLAT makes fixed payments to Penn each year for the length of its term, then distributes its remaining principal to the individuals whom the donor has chosen. The donor receives an immediate gift tax deduction for the present value of the payments to the University. In addition, at the end of the CLAT term, the great tax benefit is that the trust’s growth will pass directly to the heirs—free of gift and estate taxes.

A typical CLAT is funded with $500,000 or more, and lasts for 10-20 years, although longer and shorter terms are permitted. Due to low interest rates and other current factors, for example, a donor who funds a $1 million CLAT that pays $50,000/year to benefit Penn (5 percent of the trust’s initial value) and lasts 10 years will receive a gift tax deduction of nearly $450,000. In addition, all investment return the CLAT earns beyond $50,000/year will ultimately go to the donor’s heirs tax-free.

For further information on Charitable Lead Trusts and other types of gift planning tools, go the Wharton Estate & Gift Planning website at http://wharton.upenn.planyourlegacy.org/ and click on “Compare Gift Plans.” Or contact Greg Johnson, Director of Gift Planning, at grege@upenn.edu or 800.223.8236.

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