Advanced Planning

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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:

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.

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.

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.

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. 

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