A "lead trust" is the converse of a charitable remainder trust. In the lead trust, assets are put in trust for a specific period, either a lifetime or a predetermined number of years, after which the trust assets revert to the grantor (donor), family members, or other individuals. During that period, the earnings of the trust are paid to Lawrence. Thus, the charity's interest "leads" that of the remainder beneficiaries.
Although it is possible to secure an income tax deduction from a charitable lead trust, this vehicle is more commonly used because of its potential to effect substantial estate and/or gift tax savings, which can be greater than if the same assets were transferred to family members through a will or other type of trust. If heirs are to be recipients of the lead trust assets upon termination, a gift tax may be due initially. The amount subject to tax is, however, reduced by the value of Lawrence's charitable interest, which will substantially lower the tax liability.
A properly constructed lead trust can provide a further benefit in the donor's ability to channel to heirs all future appreciation of the assets placed in trust without diminution by gift or estate tax.
A charitable lead trust may be established with cash, bonds, securities, closely held stock, income-producing real estate, or partnership interests.
