Bear Market Provides Boost to a Little-Known Strategy; a Record Low Hurdle Rate

By Mike Spector

In addition, the money passing to heirs is a taxable gift, which in turn lowers your estate-tax exemption.

There is a way to avoid gift taxes in these trusts, a tactic called "zeroing out." This strategy — in which you structure the trust so the charitable payments made over time equal the amount of principal originally put into the trust — is generally only effective with charitable lead annuity trusts. By doing this, you avoid gift-tax consequences. But keep in mind that increasing payouts to charity could leave less money for heirs when the trust expires.