Charitable Lead Trusts

Jacqueline Kennedy Onassis created a charitable lead trust, structured to last twenty-four years with annual charitable contributions. In 2018 her heirs will receive whatever money remains in the trust.

Charitable lead trusts work by making annual contributions to charity for a set number of years with any remaining assets passing to heirs potentially free of estate tax. The trusts are created so assets appreciate substantially over time. The use of charitable lead trusts has recently increased, in part due to the gift and estate tax exceptions’ $5 million cap. Record low interest rates have also lead to the resurgent interest in these trusts.

Charitable lead trusts tend to be very confusing, however, and the trust assets are untouchable for the set amount of time. In the early 90’s many of these trusts were deemed failures, partially due to the high hurdle rate (8.4% in August 1994). Today the hurdle rate is 2.2%, increasing the chances that money will remain in the trust for the benefit of the heirs.

For more information on charitable lead trusts, see Paul Sullivan, A Trust Surges, Heirs and Taxes in Mind, but Mind the Details, The New York Times, Jul. 22, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.