Gifts That Pass Assets to Heirs

You can make a gift to CalArts that ultimately benefits your family and heirs with little or no tax penalty. This arrangement, the lead trust, is designed to pay income to CalArts over a number of years. At the end of the trust term, the remaining principal, including appreciation, passes to your children or to other designated heirs. Because the lead trust generates substantial estate tax savings, your heirs can receive a greater inheritance than if you gave or bequeathed the assets to them directly and fully subject to tax.

A similar type of lead trust can be designed to return the remaining trust assets to you. This type of lead trust generates a substantial income tax charitable deduction for the donor in the year the trust is established. The deduction is based on the income that the trust will pay to CalArts in future years. This type of trust can be especially helpful in tax planning when the donor desires a large tax deduction to offset an unusually high taxable income in one year.

Example: Annette is aware the current tax laws will substantially diminish the value of her children's inheritance. She transfers $250,000 to a CalArts lead trust, instructing the trust to pay 5 percent each year to CalArts for a period of 12 years. The assets are invested to earn a 10 percent annual total return. Over the trust term, CalArts will receive a total of $124,000. After 12 years, Annette's children will receive $350,000 from the trust. If Annette had held the assets instead in the same investment, her heirs would receive less than $290,000, based on the current highest federal income and estate tax rates.

If you have any further questions, please contact Bill Kramer, Executive Director of Development, at (661) 253-7740 or email bkramer@calarts.edu.