There was a good article in yesterday’s Wall Street Jounral on an esate planning device known as a chartiable lead trust or CLT. Under a CLT, the donor sets up an trust, drafted by an estate planning attorney in which the donor funds the trust with an initial amount of money up front, let’s say $1,000,000. The Trust then pays to a charity for a term of years chosen by the donor (for example — 5, 7, or 9 years) either an annuity or a unitrust amount each and every year. At the end of the term of years, the property remaining in the Trust goes to the donor’s heirs (which could be children, grandchildren, or whoever the donor chooses).
There are a number of complex rules and regulations set forth by the IRS for establishing a CLT, but the benefits of a properly structured CLT are as follows:
- The Donor can receive a charitable deduction for income, gift, or estate tax purposes.
- Interest rates are currently at a historical low, meaning that the amount that is required by the IRS to be paid to the charity each year is low, thereby increasing the amount that the Donor’s heirs may receive.
- Because the stock market has declined so greatly, a Donor can fund the Trust with depressed assets that they believe will increase in value over a number of years, thereby removing all of the future appreciation from the Donor’s estate, and decreasing the amount of estate or gift tax that the Donor will eventually have to pay.