Ido Stern Law Blog

One of the most powerful tools used by estate planning practitioners to combat the estate tax is the split-interest trust. These trusts make distributions to both charitable and non-charitable beneficiaries, while providing tax benefits to their donor. The split-interest trust comes in various forms:

1. The charitable remainder annuity trust
   
2. The charitable remainder unitrust,
   
3. The charitable lead trust, and
   
4. Pooled income funds.
   

The charitable remainder annuity trust distributes income to one or more non-charitable beneficiaries for a defined period of time, after which the remaining value of the trust is transferred to a charitable beneficiary.

The charitable remainder unitrust distributes a percentage of the fair market value to one or more non-charitable beneficiaries for a period of time after which the remaining value is transferred to a charitable beneficiary.

The charitable lead trust distributes a sequence of payments to a charitable beneficiary for a period of time, after which the remaining trust assets are transferred to a non-charitable beneficiary.

The pooled income funds are assets that are invested as a group and each donor receives income based on the ratio of his or her contribution to the total value of the investment pool. After the death of the donor, his or her prorated share of the investment pool is withdrawn and given to the charitable organization.

Each one of these split-interest trusts can be used to transfer wealth to the next generation, while at the same time creating a charitable deduction to the estate in the form of a charitable donation.

-- Ido Stern, JD

Labels: Estate Planning