AREAS OF PLANNING BEYOND THE ORDINARY

»Creation of a "Credit Shelter" Trust on the Death of the First Spouse - This technique shields from estate tax, a maximum amount equal to the amount of the Exemption of $5,000,000. The technique involves creating a trust on the death of the first spouse for the life of the surviving spouse. All appreciation in the value of the trust is also protected. This trust provides the surviving spouse with all of the income, principal for needs and provides the surviving spouse a limited power of appointment. This trust continues to offer protection from creditors for a surviving spouse in addition to tax savings and investment expertise when using a professional corporate trustee.

» Revocable Living Trust - Ideal for asset management, protection against disability, assures privacy and avoids substantive probate. Client chooses the trustee and successor trustees. Often referred to as "Super Joint Tenancy" because it offers all of the advantages of joint tenancy, none of the disadvantages of joint tenancy and many advantages not offered by joint tenancy.

» Generation-Skipping Transfer - Federal estate tax law seeks to impose an estate tax on the transfer of wealth to each successive generation. However, every person is eligible to protect $5,000,000, plus appreciation, from being subject to tax in every succeeding generation. The kids aren't "skipped"; just the tax! This trust, and appreciation thereof, can also skip tax in successive generations, in perpetuity. This technique should not be overlooked for even modest estates, as it is a ticket to preserving your hard earned estate from future generations' taxes and creditors.

» Qualified Terminable Interest Property Trust - Called the "QTIP" trust, this device is recommended for second marriages or step-families. A QTIP qualifies for the estate tax marital deduction on the death of the first spouse, is taxable on the death of the second spouse, but assures direction and control of a decedent's assets. Its primary use is to avoid disinheriting of a decedent's beneficiaries, while at the same time benefiting a decedent's second spouse. In other words, its application is to avoid a stepparent from disinheriting stepchildren, while at the same time providing for the stepparent.

» Charitable Split Interest Trust - The charitable split interest trust has the following tax implications:

- The client receives a current income tax deduction for the value of the charitable remainder interest at the time of the transfer of the property to the trust;

- The transfer is reported for federal tax purposes, but the value of the interest passing ultimately to charity is permitted as a gift tax deduction;

- If the Settlor of the trust dies within the term of payments reserved to the Settlor, there will be an estate tax deduction for the value of the charitable remainder determined as of the Settlor's death.

The charitable deductions for the remainder interest passing to the charity are available only if the trust is qualified as prescribed by the Internal Revenue Code.

» Grantor Retained Interest Trusts - Property may be placed in trust by the client, which instead of granting the beneficiary a term of years, reserves a term of years to the client. Generically, such a trust has been referred to as a Grantor Retained Interest Trust or GRIT. The gift of the remainder is a taxable transfer, but the actuarial value of the reserved term of years reduces the amount of the gift. If the Settlor outlives the term of the trust, the corpus of the trust is removed from taxation in the Settlor's estate.

The estate tax advantages of trusts in which the remainder is transferred to others and the client retains an income interest, is that the gift element of the transaction is only the present value of the remainder interest after taking the reserve term of years into account. The gift value of the remainder interest, however, does not receive an annual exclusion ($13,000 per year per donee) and requires application of the grantor's Unified Credit. A disadvantage of the GRIT is that the corpus of the trust must be transferred to the remainder persons during the life of the client, if the trust value is to escape inclusion in the client's gross estate.

If the client survives the trust term, the value of the gift is frozen, thus moving future appreciation from the client's estate. The gift must be complete in order to remove the gift from the client's estate and accomplish the valuation freeze.

A form of a GRIT is a Qualified Personal Residence Trust, or QPRTs. With a QPRT, a contingent reversion to the client is permitted, which results in an even further discounting of the remainder interest.

» Irrevocable Life Insurance Trusts - This is often called an "ILIT". The irrevocable life insurance trust avoids inclusion of the client's life insurance in the taxable estate of the client. For a deep discount represented by annual premium payments of less than $13,000 per year per person, a client is able to remove the death benefit created by the payment of the life insurance premiums from the client's estate at death, while still provide for the surviving spouse, and exclude the life insurance from the surviving spouse's estate as well. An ILIT can be tailored into a generation-skipping transfer trust and provide life income and support for the client's spouse and the children of the client and pass to the client's grandchildren and even further generations in perpetuity; all with no income tax or estate tax and without utilizing the client's lifetime Exemption. This is a very beneficial device in certain cases.

» The Private Family Foundation - A Private Family Foundation is a trust or a corporation that qualifies under IRC Code Section 501(c)(3) as a "private non-profit charity". It is created to perpetuate a family's charitable and philanthropic goals, both during and after a client's death. The "Family Foundation" can be designed to perpetuate a family's or corporation's charitable intentions. Public or closely-held assets can be conveyed to the Family Foundation and income taxes that would otherwise result from a sale, avoided entirely.