Additionally, one may receive a charitable income tax deduction depending on their age, or the length of the trust term, payout rate, frequency of payments, and applicable federal discount rate. Creating one of these trusts frequently enables donors to realize greater disposable income. A charitable lead trust is the reverse of a charitable remainder trust. Under a charitable lead trust, which can be created by a trust or will, donors can provide that an annuity or unitrust payment be made to a fund at the Foundation for a term of years, after which the principal is paid to the donors or to any other non-charitable beneficiary. Some people may find that the chance to take a federal income tax deduction in the initial year outweighs the disadvantage of paying taxes on the trust's income in later years.
Donors can negate the tax impact by funding the lead trust with tax-exempt securities.
A charitable lead trust allows the ultimate transfer of the property to be made at a lower transfer tax cost. This mechanism is especially useful for property with the capacity for appreciation. Charitable lead trusts are most sensible for a donor whose family can afford to relinquish the income from the gifted property during the term of the lead trust. It is possible to establish a lead trust either during one's lifetime or in a will. A charitable lead trust can substantially reduce the estate taxes payable at the time of death because of the charitable deduction for the Foundation's charitable interest in the annuity or unitrust payment.