In short
A charitable lead trust pays an annuity or a fixed percentage to a charity for a term, after which the remaining assets pass to noncharitable beneficiaries, usually family members.
Key takeaways
- The taxable gift is reduced by the present value of the charity's interest.
- It works best when the assets grow faster than the interest rate the Internal Revenue Service uses to value the interests.
- In a grantor lead trust, the grantor gets an upfront income tax deduction but is taxed on the trust's income.
Where it's tested
TCP: Estate & Gift Tax Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A client's total estate is well below the $15 million exemption. The client asks whether to gift highly appreciated stock to children now or hold it until death. From a pure tax standpoint, which is generally better and why?