If you want to make an impact now at the Metropolitan Opera and also provide for your family later, consider setting up a charitable lead trust. You transfer cash or other assets to a trust that makes payments to the Metropolitan Opera for a period of time. When the term is up, the remaining trust passes to your family or other beneficiaries you select.
There are two ways that charitable lead trusts make payments to the Met:
A charitable lead annuity trust pays a fixed amount each year to the Met and is more attractive when interest rates are low.
A charitable lead unitrust pays a variable amount each year to the Met based on the value of the assets in the trust. With a unitrust, if the trust's assets go up in value, for example, the payments to the Met go up as well.
How It Works
George would like to support the Met and provide for his children. Following his advisor’s recommendation, George funds a non-grantor charitable lead annuity trust with appreciating, income producing assets valued at $1,000,000. George’s trust pays $70,000 (7% of the initial fair market value) to the Met each year for 15 years, which will total $1,050,000. After that, the balance in the trust passes to his children. He receives a gift tax deduction of $955,700. Assuming the trust earns an average 6% annual rate of return, George’s children receives approximately $767,240 at the end of the trust term.
*Assuming annual payments and a 1.2% charitable midterm federal rate.
