Case # 5:      Increasing Payout Grantor Lead Trust

Jerry H., a businessman has had a very successful year. His professional work from the past several years has resulted in a very large income this year. As a result, he desires a substantial charitable income tax deduction, but would like to retain the asset.

He has dealt with a local trust planner before and wisely decides to call her again. Jerry funds a grantor charitable annuity lead trust with payouts to charity for a term of eight years. The trust invests in municipal bonds. At the end of the eight years, the bonds will be returned to Jerry.

In order to maximize the benefits, the trust pays an annuity equal to 2% of the initial value for the first two years, 4% the next two, 6% the next two and 8% the final two years. Because the bonds are tax-exempt, the excess income in the early years is used to acquire more municipal bonds.

Even if bond interest rates should change or bonds are called during the duration of the trust, the high probability is that the trust principal will be retained for the donor.

At the end of the eight years, Jerry receives $1,023,233. However, he benefited from an income tax deduction of $333,612 when the trust was created. Finally, with the tax-free municipal bond income distributed to charity or accumulated in the trust, there is no additional income taxation to Jerry.