A powerful financial tool for estate planning, charitable lead trusts are often seen as the mirror image of charitable remainder trusts. The more commonly used charitable remainder trust provides income to you or another person for a specific period and then devotes the remaining funds to Jewish Family and Children’s Services. With a charitable lead trust, the process is reversed: income is paid annually to JFCS for an established time and then the assets used to fund the gift are returned to you or your heirs.

Of all the gift planning opportunities available to our donors, the charitable lead trust is among the most complex. Charitable lead trusts are not for everyone, but they may provide excellent gift and estate-tax benefits. Charitable lead trusts that pass assets to heirs instead of returning the asset to the donor, however, do not provide an income-tax deduction to the donor.

The Typical Non-Grantor Charitable Lead Trust Donor

• Has a large taxable estate ($5 million or larger)
• Holds assets with growth potential
• Desires to pass certain assets to heirs
• Has made gifts to JFCS in the past and wants to use this opportunity to continue or increase current giving

Benefits to You and Your Family

• You can make a sizeable current gift to JFCS without permanently giving away your property.
• You can transfer more wealth to your heirs than is possible through another gift plan—i.e., provide your heirs with a larger inheritance by reducing or eliminating gift and estate taxes on the inheritance
• All appreciation that takes place in the trust goes tax-free to your heirs.

Why Lead Trusts Are Particularly Beneficial Now

The monthly rate that the IRS uses to calculate the remainder interest in charitable trusts is at historic lows (3.2% for October 2009). The lower the rate, the larger the gift tax benefit in a lead trust. This allows you to more easily reduce or even zero out the gift tax owed on transfer to your heirs. Be sure to involve your financial and legal advisors as part of your gift-strategy team as you consider the benefits of a charitable lead trust. It is only effective as part of an overall financial and estate plan.

For additional information, please contact Ellen McCaslin, Director of the Permanent Endowment Fund. 

Left Column Image: