The charitable lead trust can be a way for you to reduce or eliminate gift and estate taxes that might otherwise be paid while you provide for a source of gifts to American Diabetes Association for a period of years. The number of years the trust exists, the amount that is paid each year, and other factors determine the amount of the gift and estate tax deduction.
Mr. and Mrs. Walker would eventually like to provide a gift to one or more heirs. An advisor has estimated it will be necessary to give them a much larger amount for them to receive the desired gift after gift and/or estate taxes. Instead of making a gift to the heirs today, a better alternative may be to fund a charitable lead trust in the amount of $1,000,000 that would first benefit their charitable interests before becoming a gift to heirs. The trust will make payments for charitable purposes each year equal to 6% of the amount used to fund the trust, or $60,000. No income tax will be owed on the earnings of the trust, because they are devoted to charitable use. The payment amount will be fixed and will not change over the term of the trust, which it is decided will be 20 years.