High net worth couples looking to benefit a charity while reducing estate taxes and gifting to heirs with substantial valuation discounts may want to consider using a Charitable Leads Trust. This type of testamentary trust irrevocably transfers assets to the trustee upon the death of the surviving spouse. The trustee then pays a fixed percentage of the trust assets to a qualified charity for a fixed number of years. When the term ends, the remaining trusts assets are distributed to the beneficiaries.
The present value of the charity’s future stream of income is a charitable deduction for estate tax purposes. Because the beneficiaries do not pay estate taxes on this charitable portion, the money that would have been eaten up by estate taxes can be invested so that the trust grows.
The tax value of the gift is reduced by the annual percentage amount donated to charity, and the remaindermen must wait for their inheritance until the charitable term ends, but in exchange for waiting, the value of the remainder interest is discounted. If the term of the trust is long enough, the value of the remainder can be reduced significantly enough to eliminate an estate tax completely.
For more information on strategies to preserve wealth with estate planning tools like Charitable Leads Trusts, please contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.