Funding with interest: It's prime time for lead trusts. (Asset Allocation).

Thanks to the skidding economy, low stock values and tax-law changes, gift planners are promoting an underused charitable tool, the lead annuity trust.

Typically funded with at least $1 million by donors with a net worth of $10 million or more, a charitable lead annuity trust makes fixed annual payments to a charity for a term of years, or until the donor dies, with the remaining assets going to the donor's heirs, typically children.

In the expected recovery from last year's market plunge, any gain in the value of stock put into a lead trust would benefit a donor's heirs over the long term, said Charles Collier, senior philanthropic advisor at Harvard University. "A down stock market allows you to transfer stock to the trust, and ultimately your children, at current value, hopefully allowing future appreciation to run out to the children."

Any estate or gift tax on lead trust assets to be transferred to the donor's heirs is fixed when the trust is created. But, the "discount rate" that the government uses each month to adjust the charitable gift-tax deduction was 5.4 percent when The NonProfit Times went to press, compared to 7 percent to 10 percent during the past 20 years.

"The lower the discount rate, the higher the gift-tax deduction," explained Jeff Comfort, director of planned giving at Georgetown University, in Washington, D.C.

What's more, the new tax law that took effect January 1 increased the exemption on the estate and gift taxes - known as the unified credit -- to $1 million from $675,000. The exemption can be doubled for couples.

The increase gives wealthy donors another incentive to create a lead trust, Comfort said. Financial planners typically advise their wealthy clients to use up the exemption while they're alive, often by simply giving their children a gift," he said.

Collier said he was advising a 55-year-old retired investment banker who planned to fund a $2 million lead annuity trust for 15 years that would pay 9.6 percent a year to Harvard. Based on the discount rate, his deduction would total about $2 million -- making the gift tax-free.

"Even if the trust does not earn 9.6 percent and declines in value," he said, "whatever amount the children get is a free gift, and the donor has made a meaningful gift to his college."

Women's funds

Despite the economic downturn, women are creating a growing number of charitable funds and foundations and, recent studies suggest, are positioned to exercise a lot of philanthropic clout.

"There is enormous opportunity for women to increase and build on their tradition of volunteerism and philanthropy," said Siobhan O'Riordan, director of Giving New England, a Boston-based group that promotes philanthropy.

Citing studies by Merrill Lynch and Independent Sector, a new women's guide to philanthropy notes that women -- 85 percent of whom end up in charge of financial affairs -- are more likely than men to volunteer, and that charitable giving by volunteers is 2.5 times that of people who don't volunteer.

The San Francisco-based Women's Funding Network is getting ready to launch a campaign to help its member women's funds and foundations, which control $177 million in assets and make grants of $26 million annually, raise $100 million over 10 years, targeting women who can contribute $1,000 or more.

Women also are forming "giving circles" throughout the United States, pooling their funds and making grants to local groups. In Miami, for example, Deborah Hoffman and Nita Prieto-Maercks saw a lack of funding for the arts.

So, in 1996 they formed "Fifty Over Fifty," aiming to recruit 50 women to each contribute $1,000 a year. The group's 200 members have contributed nearly $1 million to 137 arts programs.

In Boston, after heading the volunteer fundraising arm of the New York City Opera, Susan Priem launched the Hestia Fund, named for the Roman goddess of the hearth, and recruited 20 women who gave $5,000 each in 2000. The group doubled to 40 women in 2001.

"Regardless of the size of the individual gift, when it's collective, you can really give something substantial," said O'Riordan of Giving New England. "It's really leveraging an individual gift and that's very powerful."

Giving New England, one of 30 coalitions throughout the United States that promote philanthropy and are supported by New Ventures in Philanthropy in Washington, D.C., offers a giving-circle starter kit on its Web site at givingnewengiand.org.

New Ventures, a project of the Forum of Regional Associations of Grantmakers in Washington, D.C., encourages its coalitions to develop new ideas it then shares with them and the Forum's 28 members. New Ventures will publish and distribute "A Plan of One's Own," the new women's guide to philanthropy.

The guide, produced by the Baltimore Giving Project and available at baltimoregivingproject.org, examines women's roles in philanthropy and features "how-to" sections on creating and using a variety of charitable-giving vehicles. It also lets local groups customize and target the guide to local donors.

"My hope," said Buffy BeaudoinSchwartz, the guide's author and director of the Baltimore Giving Project, "is that women will again have the opportunity to more fully understand our role as philanthropists."

Todd Cohen is editor and publisher of Nonprofitxpress, an online newspaper at www.npxpress.com. He can be reached at [e-mail]