Charitable Lead Trusts: A Tool for Your Family’s Financial Future

Helpful Option for Guiding, Educating Heirs From Early On

By Chris Askin CSPG, CFRE
President & CEO

You’ve likely seen those movies in which family members battle over estates and their inheritance. Or worse, the news reports of adult children suing parents, siblings suing siblings, and even the grandkids joining in the family feud. It’s a crazy world out there.  

Despite the good intentions of wealthy parents, having a good estate plan is just not enough to prevent their offspring from becoming spendthrifts – a term for those who fritter away the family fortune or grow up to be financial ne’er-do-wells. Nobody can anticipate future family personalities or who may grow up to be a spendthrift. What starts off as a family squabble can easily escalate into an expensive and destructive lawsuit.

Although the Community Foundation isn’t in the business of setting up these kinds of trusts, we do hear horror stories … sometimes referred to as “heir-raising” tales. One proven method to averting unintended consequences, in addition to having good planning and a solid trust structure, is education. 

Your heirs may grant the money to charities they care about, teaching them about philanthropy and connecting them to the community.

The best advice is to start early with purposeful communication and education in everything from financial skills to wealth management, and yes, philanthropy. A common issue concerning families of wealth isn’t that the family fortune will dwindle, but rather that the inherited wealth could create a disincentive for their kids and grandkids, turning away from leading productive lives.

Spendthrift-limiting strategies that incorporate family philanthropy may involve activities like volunteering at charities, donating, or establishing charitable lead and remainder trusts, donor-advised funds, and family foundations.  

Perhaps you’ve heard of a Charitable Lead Trust, which is a gift of cash or other property to an irrevocable trust. Often referred to by its acronym, a CLT provides a stream of income that a named charity receives for a term of years. Once that income stream period ends, the remainder assets are distributed to the non-charitable beneficiaries.

A Charitable Lead Trust is a wonderful tool to help pass along wealth and teach about philanthropy. For example, consider putting a portion of the wealth that is to be inherited in a lead trust with a donor-advised fund at the Community Foundation receiving an annuity payment for 20 years. Your heirs may grant the money to and get involved with charities they care about. This can help teach them about philanthropy and connect your heirs to the community, to causes, and to other people who care about and are involved in the community.  

At the end of 20 years, they receive their inheritance with the opportunity to keep practicing the values learned through giving. How much you put in the lead trust, and for how many years, can be part of your estate planning to limit taxes and pass along as much as possible to your heirs, and this strategy can help them improve the quality of their lives as well. Learn more about charitable trusts on the Community Foundation website.

Our team of experts, who are easy to talk with to help you understand things like charitable trusts, can work to achieve a meaningful and satisfying experience while accomplishing your and your heirs’ charitable goals. We understand that with all the acronyms, legalities, and complexities, it can all be a bit daunting and overwhelming. As a nonprofit foundation ourselves, our mission includes providing approachable, accessible fund administration, while helping you realize tax advantages. We’re here to assist you in navigating the world of philanthropy and to answer your questions.

Find out more at nevadafund.org. Or call (775) 333-5499 or feel free to email us at info@nevadafund.org. 

Connecting People Who Care With Causes That Matter

August 21, 2021