Sophisticated charitable giving techniques can allow donors to accomplish a number of philanthropic, family and tax objectives. The tools available include:
- Charitable remainder trusts
- Charitable gift annuities
- Testamentary gifts
- Family foundations
- Charitable lead trusts
In today’s environment, charitable lead trust (CLT) planning is especially attractive. With a CLT, money or property is set aside by the donor in trust. The trust’s assets are invested, and a certain percentage of the trust’s value is paid for a number of years to a qualified charity. This payment to charity is sometimes referred to as the lead interest.
At the end of the term during which the lead interest is paid, the remaining trust value is either returned to the donor (a Grantor CLT) or the donor’s family (a Family CLT). It is also possible for a donor to make CLT gifts that take effect at death using a Testamentary CLT.
Why is now a good time to think about CLT planning?
- Interest rates are low. In a low interest rate environment, the value of a lead interest paid to charity is relatively high. That means that a CLT will generate a higher income tax deduction for the donor of a Grantor CLT. It also means that amounts transferred to remainder beneficiaries of a Family CLT can be accomplished at a low gift tax cost. Finally, for those who pass away during a low interest rate environment leaving a Testamentary CLT, the strategy can generate bigger estate tax deductions than it would during times when interest rates are high.
- Many experts believe that the potential for investments to appreciate is high. Most real properties and equities are valued at substantial discounts to their year-ago prices. If investments owned by a CLT actually appreciate at a rate in excess of 4%, implementing the CLT may provide positive income tax, gift tax or estate tax leverage for donors and their families.
A CLT is not a fit for every situation. For those who are interested in making charitable gifts that also provide tax and family benefits, a detailed evaluation with tax advisors and other knowledgeable professionals is required.