In contrast to the charitable remainder trust, the charitable lead trust receive

Question

In contrast to the charitable remainder trust, the charitable lead trust receives an income interest from the donor instead of a remainder interest. Which of the following statements concerning the advantages of the charitable lead trust created for a period of ten years or less is (are) correct?

I It provides a large current deduction that will be advantageous to the taxpayer who has an unusually high-income year.

II It provides for reversion of the principal to the taxpayer or other designated beneficiary.

III It provides for a substantial reduction in income taxes for the taxpayer by shifting the tax liability to the trust.

A. I only

B. II only

C. III only

D. I and II only

Provide a detailed explanation. This is estate planning.

Explanation / Answer

C. III only, it provides reduction in income taxes for the taxpayer by shifting in tax liability to the trust as donation of interest income advantageous to taxpayer i.e. reduction in income taxes by shifting of burden of tax liablity on the interest income to the trust.

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