Why the Increased Interest in Charitable Lead Trusts?
All the attention being paid to lead trusts coincides closely with the sustained very low monthly IRS discount rates, which consistently have been 4.2% or lower during the past two years. They have been 3.0% – 3.4% since July 2009. Why is there a strong correlation between interest in lead trusts and low IRS discount rates? Because low IRS discount rates translate to high gift tax deductions for charitable lead annuity trusts (CLATs). During the past two years, in fact, it has been relatively easy to create non-grantor CLATs that earn a 100% gift tax deduction. That means these zeroed-out CLATs can pass their assets estate tax and gift tax-free to heirs. Note: Even though it is also possible for a charitable lead trust to pay a unitrust amount, the IRS discount rate has relatively little effect on the deduction associated with such a trust. The chart below shows that a 20-year CLAT must pay 6.72% of its initial value to achieve a 100% deduction when the IRS discount rate is 3% (the rat
