Nongrantor Lead Trust

Gift Range: $100,000 or more

A nongrantor lead trust created during life does not provide the donor with a charitable income-tax deduction, but neither is he or she taxed on any of the income earned by the trust. At the end of the specified trust term, the assets remaining in the trust are distributed, usually to children or grandchildren.

The principal advantage of the nongrantor lead trust is that—because of the charitable gift- and estate-tax deduction attributable to the value of the payments William Paterson is to receive from the trust—it can significantly reduce or even eliminate (depending on when it is set up) the gift and estate taxes on the value of the assets used to fund the trust. (The longer the term of the trust and the greater the amount of the payments to William Paterson, the larger the charitable deduction.) In addition, any appreciation in the trust's value will avoid transfer (gift and estate) taxes when the assets are eventually received by the beneficiary(ies).

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