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CHARITABLE LEAD TRUSTSUnder this approach, the trust is written so that the grantor trust rules are inapplicable;this is accomplished by causing the donor not to be considered theowner of the income interest. The tax consequence of such a charitable lead trustis that the donor forgoes a charitable contribution deduction at the front end, buthe or she concurrently avoids taxation on the income of the trust for each of theyears that the trust is in existence. In this situation, although there is no charitablededuction, there is nonetheless a “deduction” in the sense that the incomegenerated by the property involved is outside the stream of taxable income flowingto the donor.From an income tax standpoint, the facts and circumstances of each casemust be evaluated to ascertain whether a charitable lead trust is appropriate foran individual (or family) and, if so, whether the charitable contribution deductionshould be used. A person with a year of abnormally high income may findconsiderable advantage in a charitable lead trust that yields a charitable deduction,as that deduction will be of greatest economic advantage in relation to thehigher income taxation, and the trust income subsequently attributable to thedonor will be taxable in a relatively lower amount. Conversely, the charitablelead trust without the deduction is sometimes used in support of a charitableorganization by an individual when outright contributions by him or her to theorganization cannot be fully deductible because of the percentage limitations onannual charitable contribution deductions.§ 16.4 TAX TREATMENT OF CHARITABLE LEAD TRUSTSA qualified charitable remainder trust is an entity that generally is exempt fromfederal income taxation. 15 A charitable lead trust, by contrast, is not exempt fromincome taxation. Consequently, the tax treatment accorded a charitable lead trustdepends on whether the grantor trust rules are applicable. 16If the grantor trust rules are applicable, so that the donor is treated as theowner of the trust, the income of the trust will be taxable to the donor and not tothe trust. 17 This means that the trust will not have any income tax liability.If the grantor trust rules are inapplicable, so that the donor is not treated asthe owner of the trust, the income of the trust will be taxable to the trust. In thissituation, the charitable lead trust is allowed an unlimited charitable deductionfor the payments from it, pursuant to the trust agreement, to the charitable organizationthat is the income beneficiary. 18A charitable lead trust is not entitled to an income tax deduction for paymentsto charitable organizations in excess of the income interest payable underthe terms of the trust agreement. 19 Under the facts of a particular case, four individualsestablished a trust and transferred $15 million to it. The trust qualified asa charitable lead trust, with provision for specified annuity payments (totaling15 See § 12.6.16 See § 16.3, note 14.17 IRC § 671.18 IRC § 642(c)(1).19 Rebecca K. Crown Income Charitable Fund v. Commissioner, 98 T.C. 276 (1992), aff’d, 8 F.3d 571 (7th Cir.1993). 518