The Treasury Department is proposing to outlaw a strategy that some wealthy people use to reduce estate taxes by taking advantage of the shortened life expectancy of severely ill individuals, the Washington Post reports.
Taxpayers who use the tactic, which one lawyer calls “somewhere between ghoulish and grotesque,” create a charitable lead trust that delivers a stream of payments to charity over an individual’s lifetime.
At the individual’s death, the taxpayer’s heirs receive any remaining funds.
The individual named in the trust can be anyone – not just the taxpayer or family members, the Post says.
Scheming planners have taken advantage of the law, offering charitable lead trust planning services that call for young, seriously ill people to be named in the trust.
Taxpayers who create trusts in the name of a young, terminally ill individual ensure they will receive a larger income tax deduction and that their charity payments will stop prematurely, the Post reports.
New regulations would require taxpayers to link lead charitable trusts to relatives or to specify the term of years the trust will be active.