A brief description of the types of trusts are listed below.  

Revocable Trust (utilizing an A/B Trust)

• Marital deduction: Allows for a complete transfer of all assets at the death of the first spouse to the surviving spouse, without having to pay any estate taxes at the first spouse’s death.  Certain unintended consequences can occur in later tax planning, so competent counsel should be advised.  

• Unified deduction: Allows for the maximum exemption for a couple, currently at $650,000 per person or $1,300,000 for a couple.  If an A/B or "bypass" trust is not properly created at the first death then this can result in loss of the deceased spouse's deduction, resulting in substantial additional estate tax on the surviving spouse's estate.

Charitable Remainder Trust (CHRT): 

A CHRT allows for the complete avoidance of income, capital gains and estate tax on appreciated assets (i.e., real estate, stocks or other assets - stamp collections - as an example) that have grown in value over time in the estate of the donor. The donor receives a tax deduction in the first year calculated on the value of the asset given, the age of the donor, and the number of years income will be paid to the donor.  The deduction can be used in the first year within limitations, to reduce or eliminate personal income taxes, plus up to five more years, depending on the size of the deduction.

Irrevocable Life Insurance Trusts

See more about this in our Life Insurance section.

Charitable Lead Trust

This is the reverse of a Charitable Remainder Trust. The income generated from assets placed in a trust goes to a charity for a number of years. Eventually, what is left in the trust goes back to the donor, his or her children, etc. By using this strategy, large amounts of assets can be transformed with little or no estate or gift taxes.

Qualified Terminal Interest Property (QTIP)    

Typically, this trust is used to preserve assets for children of a prior marriage. The trust allows the creator to restrict his surviving spouse’s ability to access trust assets, so as to protect these assets until the death of the surviving spouse.  Income is provided to the surviving spouse, but the trust principal passes to the creator’s children at the second death.