SC Lawyer, May 2004, #8. Charitable lead trusts.

AuthorBy Michael L.M. Jordan

South Carolina Lawyer


SC Lawyer, May 2004, #8.

Charitable lead trusts

South Carolina LawyerMay 2004Charitable lead trustsBy Michael L.M. JordanIt was reported that Jackie Onassis had an estate of approximately $25 million but that virtually no estate tax was paid at her death.

How did she do that? She did it using a charitable lead trust.

Most of us do not have clients who have the wealth of Jackie Onassis. For that matter, most attorneys do not have that kind of wealth. However, if the size of a client's estate is such that he will be facing an estate tax liability at his death, then perhaps the client should consider using a charitable lead trust as part of his estate plan.

But, proper estate planning is not just for clients. It is also for all of us in the legal profession. We should not be the proverbial cobbler who has holes in his own shoes. A charitable lead trust might just be a very good technique for all of us to use as we develop our own estate planning as well as our clients'.

What is a charitable lead trust?

A charitable lead trust is a sophisticated way of both giving an immediate gift to the charity of a donor's choice such as a church or synagogue or other charity and ultimately transferring the assets to the donor's children. The transfer to the children will often occur at a significantly reduced estate and gift tax cost.

A charitable lead trust is the opposite concept of the more familiar charitable remainder trust. With a charitable lead trust, the charitable payments happen first and the remainder interest belongs to the family.

A charitable lead trust is established by the donor transferring property, such as securities, to the trust. During the trust term, the trust provides for an annual income to be paid to the designated charity (or charities) for a certain period of time. That trust term can either be based on a person's life expectancy or on a set number of years. At the end of the charitable term, the trust terminates and distributes to the children or other family member beneficiaries.

The estate and gift tax benefit is normally the reason to use a charitable lead trust. In addition to providing for a current benefit to the charity of the donor's choice, the charitable lead trust allows the donor to leverage (i.e., use $1 of the amount protected by the tax credit to give $2 or more to...

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