Choosing A Trust

Trusts can range from simple to extremely complex, and are a standard tool in the anti-estate-tax arsenal.  The only rule is that if the trust benefits a spouse, “you must cause the trust to be included in the second spouse’s estate, for estate-tax purposes.”  If it is not included in the second spouse’s estate, the assets would have the same basis as at the first spouse’s death.  Trust options include, but are not limited to:

• Credit Shelter Trust.  If, between the first spouse’s death and the second, the estate is likely to grow beyond what the portability will shelter, experts suggest that members of a couple leave everything outright to the surviving spouse, but put a provision in the will saying that disclaimed assets must pass into a credit shelter trust.  This makes certain the estate-tax exemption is in place.
• Clayton QTIP Trust.  Clients who want to leave assets into trust should use a Clayton QTIP trust.  “It’s just like an ordinary QTIP, but to the extent that you do not make a QTIP election on the assets sitting inside the trust, the unelected assets pour over automatically into a credit shelter trust.”
• Irrevocable Life Insurance Trust.  Life insurance can help beneficiaries pay estate taxes, thus, when the death benefit is paid to a trust instead of an estate or individual, it stays outside the estate’s taxable value. 
• Charitable Remainder Trusts.  “Assets can pay to a client for life, to children for life, and to grandchildren for a period of time, and then go to a charity.”

See Ingrid Case, Which Trust to Use? Financial Planning, Feb. 5, 2015.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.