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Monday, July 25, 2011

$5 Million Exemption, Low Interest Rates Fuel Surge in Charitable Lead Trusts

New York Times, A Trust Surges, Heirs and Taxes in Mind, but Mind the Detail, by Paul Sullivan:

Jacqueline Kennedy Onassis is remembered for many things — as a first lady, a preservationist, a fashion icon. But her legend stands tall in a far more esoteric realm: her will is revered in the world of trusts and estates, too

A feature of it that is coming back into vogue is the charitable lead trust. After parceling out specific gifts, Mrs. Onassis put the rest of her estate into one of these trusts. It was set up to last 24 years, distributing money to charity annually. Whatever is left in 2018 goes to her heirs, in this case her grandchildren.

But the resurgent interest in charitable lead trusts is as much for financial advantage as for altruism.

Since the Republicans and President Obama allowed the gift- and estate-tax exemptions to rise to $5 million per person for this year and next, there has been a rush to pass far more money than that on to heirs, free of tax. In the case of charitable lead trusts, record low interest rates are driving the trend further.

The IRS sets what is called a hurdle or discount rate for these trusts, which is tied to United States Treasury rates. A lower rate means the payment to charity each year can be lower, and if the assets are invested to beat that rate, the amount left over for heirs should be higher.

The confluence of these factors comes as advisers are already bombarding their wealthiest clients with ways to pass money onto heirs, with good reason: the super-rich may be living through the greatest time for avoiding estate and gift taxes in recent memory.

(Hat Tip: Ann Murphy.)

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