There are multiple different types of trusts that can be utilized to great advantage when you are planning your estate. They serve different purposes, with some of them being designed to provide tax efficiency. One of these is the charitable lead trust.
A non-grantor testamentary charitable lead trust is sometimes called a “wait a while” trust. These devices are rather complicated, so the best way to learn about them is to consult with a licensed estate planning attorney in person. You can then get a complete explanation and have all of your questions answered.
However, to provide a brief glance with a wait-and-see trust you arrange for assets that you have that exceed the estate tax exclusion amount to be captured by a testamentary charitable lead trust at the time of your death.
This trust will provide contributions to a qualified charity or charities of your choosing on a basis no less frequently than annually for a prescribed number of years. This charity is the lead beneficiary, but you also select a noncharitable beneficiary who would assume ownership of anything that is left in the trust after the term expires.
The IRS calculates the value of the trust by adding what is called a hurdle rate or discount rate to the principal to account for anticipated appreciation. The idea is to “zero out” the trust by contributing the entirety of this value to the charity over the term of the trust.
If the assets in the trust grow beyond the hurdle rate, a remainder will exist at the end of the trust term. The beneficiary can assume ownership of this remainder tax-free.
Mark S. Eghrari, Estate Planning Attorney
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