Financial Planners Increasingly Promote Charitable Trusts

The recession is creating optimum conditions for wealthy donors to set up charitable trusts as a way to give money and also shelter income from estate taxes, reports The Wall Street Journal.

Assets, including cash, stocks, and art, can be transferred to a “charitable lead trust” for a set numbers of years, during which payments are made to a designated charity or charities. When the term expires, the remainder of the trust goes to heirs. Because the assets are not part of the donor’s estate, any appreciation is not subject to estate taxes.

Estate planners say low interest rates and depressed asset values make the trusts more attractive. The so-called “hurdle” rate, which the Internal Revenue Service uses to predict the growth of assets in such trusts, is at a historic low of 2 percent; gains beyond that rate, which is locked in for the life of the trust, can generally be passed on to heirs tax-free, the Journal notes.