Case #5 · Jerry H.
Increasing-Payout Grantor Lead Trust
A large deduction in a high-income year, without giving the asset away.
The situation
Jerry, a businessman, had a very large income from several years of professional work landing in one year.
The goals
- A substantial charitable income tax deduction
- Keep the underlying asset
The strategy: A grantor charitable annuity lead trust invested in municipal bonds
- Jerry funds the trust, which creates an income tax deduction right away.
- The trust pays charity a rising annuity: 2% in years 1–2, 4% in years 3–4, 6% in years 5–6 and 8% in years 7–8.
- Tax-exempt municipal bond interest above the early payouts is reinvested in more bonds.
- After eight years, the bonds return to Jerry.
The results
| Income tax deduction | $333,612 when the trust was created |
|---|---|
| Returned to Jerry | $1,023,233 after eight years |
| Extra income tax | None on the municipal bond income |
Figures are illustrative and based on the tax rules in effect when the case was prepared. Results vary.
Could a strategy like this work for you?
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