Advanced Planning

There are countless types of irrevocable trusts that can be used to achieve a wide variety of tax and non-tax objectives. Several of the most commonly used structures include:

Special Needs Trusts

Individuals with disabilities or other special needs may be eligible for a variety of public benefits. Certain "needs-based" benefits such as SSI and Medi-Cal are available only to people with extremely limited assets and income. Special Needs Trusts allow additional assets to be made available to enhance the quality of life of a special needs beneficiary without jeopardizing his or her eligibility for public benefits.

IRA Trusts

The same laws that require people to begin taking withdrawals from their IRAs once they reach age 70½ also specify the "required minimum distributions" that must be taken by beneficiaries who inherit an IRA. Maximizing the opportunity for tax-deferred growth (or tax-free growth in the case of a Roth IRA) generally requires that an individual be named directly as beneficiary. But many non-tax factors might make it undesirable to name someone directly as beneficiary (e.g., if the beneficiary is a minor or spendthrift). Carefully crafted IRA Trusts can combine the tax benefits of naming a beneficiary directly with ongoing management and control by a responsible trustee.

Life Insurance Trusts

Although life insurance proceeds are typically not subject to income tax, they are generally exposed to estate taxes if a decedent's estate is large enough. So a $2 million policy might actually yield only $1.2 million in benefits after a 40% estate tax bite. An Irrevocable Life Insurance Trust (an "ILIT") can keep a policy out of a decedent's gross estate and enable the proceeds to pass completely tax-free.

Charitable Trusts

Numerous charitable lead and remainder trust structures enable the structuring of philanthropic gifts to meet other tax and non-tax objectives. In addition, where direct, ongoing involvement in charitable activities is desired, a trust may be used to establish a tax-exempt private foundation. 

Other Types of Trusts

Depending on the circumstances, other types of trusts that might be worth exploring include:

  • Qualified Personal Residence Trusts
  • Grantor Retained Annuity Trusts
  • Intentionally Defective Grantor Trusts
  • § 2503(c) Minor's Trusts