In the past, wealthy individuals haven’t utilized charitable lead trusts often because of the risks associated with them. Donors of charitable lead trusts run the risk of using up their lifetime gift tax exemptions while leaving nothing for their family if returns are low. With a $5 million exemption and the possibility that it will drop in less than two years, now might be a good time to structure a lead trust using some or all of individuals’ lifetime exemption amounts. Financial advisers need to be counseling their clients on ways to take advantage of the increased gift tax exemption window, and lead trusts are a prime method.
Here is an example of how this would work: A $5 million lead trust that pays 3% for 20 years creates a reportable gift of about $2.8 million. The donor gets credit for a $3 million gift, and the donor’s family will likely see a nice remainder.
See Jonathan Gudema, New Lead Trust Opportunities Created by Tax Relief Act?, onPhilanthropy, Mar. 28, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.
