Oct 1, 2010 12:00 PM

Consider giving the bulk of the estate to GRATs or CLATs — then the remainder to NQCTs to achieve maximum flexibility and your client's philanthropic goals

By David R. Hodgman & Michael J. Huft

We all have clients who feel they've fully provided for their descendants and loved ones financially, so their remaining estate-planning objectives are purely philanthropic. The end-of-life estate plans for those clients become very simple — make a direct gift of the residue of the estate to public charities or a private foundation (PF). But is this strategy the best way to achieve your client's civic and philanthropic goals? Perhaps not. Why not advise your client to consider giving the bulk of his estate to lifetime grantor retained annuity trusts (GRATs) or lifetime or testamentary charitable lead annuity trusts (CLATs), for which the taxable value of the non-charitable remainder is zero? The recipient of those remainder interests would be non-qualified charitable trusts (NQCTs). NQCTs are trusts that don't claim the benefits afforded to tax-exempt entities under Internal Revenue Code Section 501(c)(3) or are otherwise subject to the PF rules — but yet they're expected to expend funds primarily or exclusively directed towards charitable, social or related political purposes.

The bulk of your client's estate, that is, the lead interest, would pass to conventional public or private charities that qualify for income, gift and estate tax deductions. But the remainder interests passing to the NQCT would have a zero value for estate and gift tax purposes, so the failure to qualify for a charitable deduction wouldn't have any adverse transfer-tax consequences.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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