For a private, taxable investor whose goals include 1) preserving the ownership of your assets that you plan on holding for ten years or more (such as artwork, vacation homes, family businesses, and other illiquid assets) and 2) giving back to your community, a Charitable Lead Trust should be on your list of things to do before the end of 2012. Goals that can be attained by incorporating CLTs into a comprehensive estate plan include:
- Removing appreciating assets from the maker’s estate at a reduced transfer tax cost;
- Reducing the value of gifts to remaindermen by creating an intervening charitable annuity or unitrust interest;
- Making gifts to charity and remaindermen while the maker is living rather than waiting until after death;
- Benefiting charitable beneficiaries by making a firm commitment to make contributions over a fixed period;
- Exceeding the maker’s percentage limitation for gifts by contributing income-producing assets to a trust that can fully deduct the charitable contributions;
- Creating an immediate income tax deduction for the present value of an income interest to charity and ultimately receive the assets back;
- Creating an immediate income tax deduction for the present value of an income interest to charity and make a reduced gift to remaindermen;
- Removing assets from the claims of future creditors;
- Making generation-skipping gifts that allow immediate allocation of the GST tax exemption (for CLUTs only);
- Allowing the maker to have the full use of all of his or her assets while living;
- Reducing or eliminating federal estate tax by creating a charitable deduction for the present value of the annuity or unitrust interest paid to charitable beneficiaries; and
- Maximizing the allocation of the decedent’s GST tax exemption remaining at his or her death.
Planning, drafting, funding and executing charitable lead trusts requires customization for your unique situation by a specialist who has a thorough understand the income, gift, and estate ramifications of these specialized irrevocable trusts.