Revocable "Living" Trust
A living trust is probably the best strategy to avoid probate and protect your financial privacy. In addition to the benefit of avoiding probate, a revocable living trust can ensure your own personal and financial welfare in the event that something happens to you during your lifetime. You will be able to select someone to make decisions and act on your behalf should you become incapacitated or incapable of making decisions. In addition, you may appoint a professional manager as trustee to manage and make decisions about the trust's assets. This trust may be revoked by the settlor during life or until a specified event such as the death or incompetence of the settlor. Unlike a simple brokerage account, a living trust can hold all types of assets - from your investment portfolio to collectibles, real estate and partnerships, to your family's closely held business interests. Unlike your Will, a living trust is NOT a matter of public record. If your trust agreement provides for your trust to continue after your death, the assets in the trust at your death will escape probate and any ensuing publicity.

Irrevocable "Living" Trust
You do not have to wait until your death to make tax-saving transfers. In fact, a well-planned program of lifetime gifts to family, friends, and charity can save estate and gift taxes, preserve more of your assets for your family and other heirs, and ensure your property goes to the people you want to have it.

An irrevocable "living" trust is a method to transfer ownership of an asset without making an outright gift. You relinquish any right to income and principal from the trust, as well as the power to change the trust agreement, and in return the asset is not considered part of your taxable estate. You may name the recipient and the timing of distributions of the assets, income, or principal. Because the transfer is considered a gift to the trust, a gift tax may be imposed unless the transfer qualifies for the gift-tax annual exclusion or you use some or all of your unified credit.

Asset Protection Trust
In many situations, our elderly clients may be in poor health or may need nursing home care. Nursing home or institutional care can be extremely expensive, and most elderly individuals do not have long term care insurance. As a result, many elderly individuals face chronic long term care expenses - and possible bankruptcy. An Asset Protection Trust usually provides income to the potential nursing home patient, or the community spouse, but allows the nursing home patient to receive Medicare and Medicaid benefits, which would otherwise cover the nursing home costs. These trusts protect the trust assets by not allowing the government or the nursing home to invade the trust assets during the person's lifetime or after their death.

Grantor Retained Income Trust (GRIT)
There are two types of Grantor Retained Income Trusts - the Grantor Retained Annuity Trust (GRAT) and the Grantor Retained Unitrust (GRUT). These trusts allow you to transfer assets to a trust and still collect income from or use the property for the term of the trust. This type of trust is often used to "freeze" the value of estate assets for estate-tax purposes. With either a GRAT or a GRUT, you irrevocably transfer property to a living trust. You or you and your spouse, retain for a fixed period of time, the right to a fixed amount or fixed percentage of the trust principal each year.At the end of the period, the trust principal passes to your children or remains in trust for the benefit of your heirs (or other beneficiaries). If you survive the fixed period of time, the value of the retained income interest plus all appreciation in the trust assets after the trust was created escape being included in your estate for Pennsylvania and federal estate tax purposes. This can result in significant estate tax savings. However if you die before the end of the fixed period of time, the value of the trust assets at death are included in your estate for Pennsylvania and federal estate tax purposes.

Life Insurance (Dynasty) Trust
One popular use of an irrevocable living trust is to shelter your life insurance policy from unnecessary taxes, and to guarantee that the proceeds reach the intended beneficiary as desired. With a life insurance trust, the trust is the owner and beneficiary of your life insurance policies. Life insurance trusts may be funded during lifetime with life insurance policies that you own. If you die within three years after transferring the policy to the trust, the proceeds will be subject to federal estate taxes. You can avoid this three-year rule by: (1) transferring your insurance policy to a trust now while you are in good health; or (2) having your trust buy new insurance policies on your life rather than transferring existing policies. At your death, the death benefit from the policies may fund the trust for payment of estate taxes, for outright distribution to beneficiaries, or to invest the proceeds and administer the trust in accordance with the terms of the trust agreement.Life insurance trusts can also take the form of a Dynasty Trust. Typically, a person can not create a trust for the benefit of his children and grandchildren in excess of one million dollars. However, if properly structured, you can create a Dynasty Trust for an unlimited amount. The Dynasty Trust can provide for income and benefits to multiple generations - avoiding estate taxes for years.

Charitable Remainder Trusts
Making charitable gifts during your lifetime or at your death can help reduce estate and income taxes. You can make these gifts either outright or in a charitable trust. If you make a charitable gift in your Will, your estate can claim an estate tax deduction for the value of that gift.

But, rather than waiting until your death, you may want to consider making your charitable gifts now. Lifetime gifts to qualified charities can provide income, gift and estate tax savings, as well as help and further the work of organizations you believe in. A charitable remainder trust provides you with an income tax deduction while the income from the assets goes to you, your spouse, or a beneficiary. Upon termination of the trust, the charity receives the principal. A charitable lead trust provides a charity with the income from your principal, paid over a certain amount of time, after which the principal passes to your heirs.

Trust for Minors
Many people do not feel comfortable giving large sums of money to their children or grandchildren. A living trust that will hold and manage those sums until the child is more mature may seem like a good idea. However, gifts of "future interests" (gifts the recipient is not able to enjoy until the future) do not qualify for the federal gift tax annual exclusion. A better strategy is to create a Minor's Exclusion Trust, which does qualify for the annual gift tax exclusion as a result of Internal Revenue Code Section 2503(c). If you and your spouse both die, a testamentary minor's trust will hold your assets for your children until they reach a certain designated age.

By-Pass or Credit Shelter Trust
This trust is used to minimize the tax bite on the second estate (or those assets which later pass from the surviving spouse to your children). A Credit Shelter or By-Pass Trust can help both you and your spouse take advantage of the federal unified credit and transfer up to $2 million in assets (in year 2006 and later) to your children or other heirs free of federal estate tax. The By-Pass Trust receives assets up to the maximum amount of the unified credit ($1 million for tax year 2006) upon the death of the first spouse, with the principal and income being used by the surviving spouse during his or her life. Ultimately, the trust will be distributed to children or grandchildren, but will not be counted in the taxable estate of the surviving spouse. This allows you to pass up to $1 million on to your children tax free now and allow your spouse to use his or her own $1 million unified credit on his or her death to the best advantage.One way to make the most of you and your spouse's unified credits is to arrange for your estate to be divided into two parts at your death. One part would pass outright to your spouse. The second part of your estate is placed into a By-Pass Trust created by your Will or living trust. You can even give your spouse a limited power to withdraw trust assets over and above what the trust might otherwise distribute.

Marital Trust
The two-trust estate plan is another planning strategy for couples that use a By-Pass Trust and one other trust. This plan saves estate tax in the same way a By-Pass Trust alone does. But with a two-trust estate plan, the assets that pass to your spouse under the marital deduction are also placed in a trust, rather than left to your spouse outright. This "marital" trust may be a QTIP trust (explained below), or it can be another trust qualifying for the marital deduction. With a marital trust, you can provide for your spouse without leaving your property directly to him or her.

QTIP (Qualified Terminable Interest Property) Trust
With a Qualified Terminable Interest Property (QTIP) Trust, you can give your spouse a life income and choose who will receive the property in the trust after your spouse's death - your children or grandchildren, for instance. Your executor can elect to claim the marital deduction for the trust property. For the trust property to be eligible for the QTIP election: (1) You must give your surviving spouse a qualifying income for life; (2) Your spouse may not transfer that income interest to anyone else during life or at death; and (3) The assets may not be distributed to anyone other than your spouse while your spouse is alive.

A QTIP is often used by remarried individuals and allows you to provide income after your death to your second spouse, while preserving assets for children of your first spouse.

Qualified Personal Residence Trust (QPRT)
Your home may be the most valuable asset you own. Removing its value from your taxable estate could significantly reduce estate taxes. The question is how? One method of eventually passing your home on to your children (or other beneficiaries) in a tax-favored manor is through the use of a Qualified Personal Residence Trust (QPRT). A QPRT operates similar to a GRAT, as described above, except that a QPRT is limited solely to your personal residence or a second (vacation) residence.The effect of the QPRT is the same as a GRAT, in that the retained right to use the residence plus all appreciation in the residence after the trust was created escape being included in your estate for Pennsylvania and federal tax purposes. This can result in significant estate tax savings.

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