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FUNDAMENTALS OF PLANNED GIVING(b) Income Tax Charitable Deduction (If Any)A transfer of money or property to a charitable lead trust may or may not result ina current “front-end” income tax charitable contribution deduction for the donor.If certain conditions are met, a charitable deduction will be available for thevalue of an income interest created by means of a charitable lead trust. Theseconditions are principally twofold. First, as noted, the income interest must be inthe form of an annuity interest or a unitrust interest. When this is done, the charitablecontribution deduction is available for federal income, gift, and estate taxpurposes, if the other requirements are satisfied. Second, the donor must betreated as the owner of the income interest, pursuant to the grantor trust rules.(This is a federal tax law requirement, with the donor being the grantor.) Thislatter requirement means that the income as received by the charitable lead trustis taxed to the donor/grantor (unless municipal bonds are used—see above).A charitable lead trust may be established so that there is no income taxcharitable contribution deduction for the income interest involved. Under thisapproach, the trust is written so that the grantor trust rules are inapplicable;this is accomplished by causing the donor to not be considered the owner of theincome interest. The tax consequence of such a charitable lead trust is that thedonor forgoes a charitable contribution deduction at the front end, but he orshe concurrently avoids taxation on the income of the trust for each of the yearsthat the trust is in existence. In this situation, even though there is no charitablededuction, there is nonetheless a “deduction” in the sense that the income generatedby 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 utilized. A person with a year of abnormally high income mayfind considerable advantage in a charitable lead trust that yields a charitablededuction, because that deduction will be of greatest economic advantage inrelation to the higher income taxation, and the trust income subsequently attributableto the donor will be taxable in a relatively lower amount. Conversely, thecharitable lead trust without the deduction is sometimes utilized in support of acharitable organization by an individual when outright contributions by him orher to the organization cannot be fully deductible because of the percentage limitationson annual charitable contribution deductions.(c) Determining the Charitable DeductionThe Department of the Treasury promulgates interest rates and tables to use invaluing remainder interests created by charitable remainder trusts, both annuitytrusts and unitrusts. These tables are also used to value an income interest that isstated as an annuity or unitrust interest.(d) Tax Treatment of Lead TrustA qualified charitable remainder trust is an entity that generally is exempt fromfederal income taxation. A charitable lead trust, however, is not exempt from 164