Giving Smarter While Helping Your Estate
John Schuman, a principal at Budros, Ruhlin & Roe Inc., a Columbus-based wealth-management firm, suggested Ms. Ridgley set up a charitable lead trust. "She wanted to give [the sale proceeds] to her kids, but she also had these charitable goals," Mr. Schuman says. The trust presented an opportunity "to balance those interests."
In July 2004, Ms. Ridgley transferred her money to the trust for a term of eight years. The IRS's hurdle rate at the time was 5%, but Ms. Ridgley took advantage of a rule that allowed her to use the rate from two months earlier, a relatively low 3.8%.
Today, the combination of low interest rates and depressed asset values makes it a "perfect storm of opportunity" for the affluent to execute charitable lead trusts and other vehicles that remove wealth from their estates and pass it tax-free to heirs, says Herb Daroff, an estate-planning lawyer at Baystate Financial Planning, a Boston wealth-advisory firm.
Financial advisers say that's important because the estate tax is likely to remain under a Democratic White House and Congress. The current basic federal estate-tax exemption for 2009 is $3.5 million, with a top rate of 45%.
The tax is scheduled to vanish next year and then return in 2011 with a $1 million exemption and a top rate of 55%. But President Barack Obama said during the presidential campaign that he favors extending the current $3.5 million per-person exemption and 45% top rate into future years.
Two Trust Flavors
Charitable lead trusts generally come in two flavors: charitable lead annuity trusts and charitable lead unitrusts. In an annuity trust, the donor sets a fixed annual gift for charities. In a unitrust, the charitable beneficiaries receive a percentage of the trust's value each year, meaning those benefits will fluctuate based on the trust's investment returns or losses.
