Charitable Lead Trust Example

Mr. Johnson decides to create a charitable lead trust with corporate bonds that are worth $1 million. The bonds pay 5 percent annually. The lead trust is set up to pay the income from the bonds, $50,000 a year, to Saratoga Bridges for the next 20 years. This means that Mr. Johnson is able to make a gift of $1 million to Saratoga Bridges over the next 20 years.

At the end of 20 years, all of the corporate bonds - the full $1 million - will be given to Mr. Johnson’s. Because of the lead trust, the children get $1 million and Mr. Johnson reduces estate and gift taxes and preserves family wealth.