There are various different ways to incorporate charitable giving into a comprehensive estate plan. While giving is its own reward on a particular level, without question many people are more or less compelled to give to charity because of the tax advantages.
One of the devices that can be utilized to great advantage, especially during our current era when interest rates are low, is a charitable lead trust.
We will endeavor to provide a very simple, surface explanation here but we urge you to get in touch with us to arrange for a consultation if you would like to hear more of the details.
The estate tax exclusion on the federal level is $5.25 million this year. The top rate is 40%, so you do have to take some steps to gain tax efficiency if you have resources that exceed this exclusion amount.
With a charitable lead trust you convey assets into the vehicle and the trust will make contributions to a charity of your choice during the trust term, which is generally set at somewhere between 10 and 20 years.
The value is calculated by the IRS using what is called a “hurdle rate” which is an estimate of interest earned. In most cases the idea is to arrange for the charity to receive the entirety of the IRS-projected value of the trust.
If the assets in the trust outperform the hurdle rate (which is probably going to happen under today’s low interest rates), the beneficiary that you name when you create the trust would be able to assume ownership of the remainder in a tax-free manner.