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A Win Win for Everybody Judicial Watch donors have a variety of gift and estate goals. Let’s discuss one possible scenario on how a JW donor can give generously to JW while preserving significant assets for heirs and gain considerable tax savings. Let’s say a hypothetical donor, a 75 year old widow, has generously given $10,000 annually to Judicial Watch over the past several years. And she recently contacted Judicial Watch after having attended a seminar on the use of charitable lead trusts. With her current estate valued over $3,000,000, she thought that perhaps she could fund a lead trust with a portion of her estate and take advantage of the charitable gift deduction. This charitable deduction would enable her to transfer more of her estate via the lead trust to her children with reduced gift tax consequences. Our hypothetical donor stated that she would like to continue to give her targeted amount of $10,000 per year to JW, but was wondering if the lead trust would be the best vehicle to fulfill her annual giving objectives. After all, she learned in the seminar that a lead trust could be set up for a term of years or a lifetime. Yet she had an interesting thought could a trust be set up for a combination of a term of years and a lifetime? Judicial Watch¹s Planned Giving Advisor, Ted Meyers, had the answer. Ted stated that in order to receive a double benefit for both income and estate tax purposes, our supporter may consider setting up a charitable lead trust for the lesser of a term of years or her lifetime. In looking at Treasury tables, her life expectancy was calculated at about 12 years. Therefore, Joan could create a trust to last for the lesser of 12 years or her lifetime. Ted went on to explain that this trust uses the actuarial formulas now required by the Treasury Department for agreements such as grantor retained annuity trusts. The actuarial method, however, is sound and may also be used for a charitable lead trust. Why should our donor create such a plan? She is already giving $10,000 per year to Judicial Watch. So by setting aside 10% of her estate, or $300,000 in assets, and creating a lead trust that pays 8% or $24,000 per year, she is removing this income from her personal tax return and making greater gifts than she has made in the past. And if our hypothetical donor survives past her normal life expectancy of 12 years, the inheritance for the family will be transferred at that time without further taxation. Based on an Applicable Rate of 7.6%, the $300,000 trust will generate a charitable gift tax deduction of $138,727. The balance of $161,273 is a taxable gift and requires the filing of a gift tax return and use of a portion of her lifetime exemption. In short, since the lead trusts assets, which will be eventually transferred to her children at the termination of the trust, may equal $300,000 plus growth, this is the equivalent of receiving a free additional exemption of $138,727 plus growth. For the donor, it¹s as though she receives a double benefit from gifts that are already being made. This trust will invariably provide more to the children and, will obviously be quite simple to create. For details on how to make a charitable lead trust part of your estate planning, we invite you to call JW¹s Planned Giving Advisor Ted Meyers at (202) 646-5172 or write Judicial Watch, 501 School Street, SW, Suite 500, Washington, DC 20024.
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