For many clients, the foundational Revocable Living Trust is enough to properly plan for their circumstances.  For others, special circumstances and the need for greater levels of financial protection are resolved using more advanced planning.  Chip will be able to determine if your assets and situation are such that you can benefit by Asset Protection planning. 

Following are some types of Advanced Planning Trusts that can solve special circumstances:

Credit Shelter Trusts (A/B Trusts)
If your estate is less than $3.5 million (in 2009), your estate will not owe estate taxes.  Many do not realize that life insurance benefits become part of the taxable estate, as does the full value of any property, rather than just the equity ownership.  These can quickly increase the estate to over $3.5 million.

If your estate is valued at more than $3.5 million, anything over $3.5 million is taxed at 45%.  On a $4 million estate, that would be estate taxes of $225,000!  Most married couples leave everything to each other.  Upon the death of the first there is no estate tax.  However, if estate planning has not been done before the first death, the beneficiaries of the surviving spouse will have excessive estate taxes that could have been avoided.

The $3.5 million exemption is per person.  A Credit Shelter Trust uses both estate tax exemptions, for husband and wife, so that twice as much can pass to heirs upon the death of the second spouse. So in fact $7 million can be passed to the ultimate beneficiaries without any estate tax.

In addition to minimizing estate taxes, a Credit Shelter Trust will provide asset protection to each other against lawsuits, and protect unintentional disinheritance of children if a surviving spouse remarries.

Spendthrift Trusts
Because minors and young adults may lack the ability to make appropriate financial decisions, parents may want to establish trusts to protect them from unwise decisions.  The parent establishes the age at which they believe their children will be financially mature.  They may even establish a series of age releases.

Incentive Trusts and Disincentive Trusts
Parents may establish a trust to establish conditions for the distribution of the inheritance.  Common conditions include educational goals or career goals as an incentive.  Disincentive Trusts can focus on elimination of known problems such as drug or alcohol abuse.

Lifetime Inheritance Protection Trusts
This trust is designed to protect inheritances from divorces, judgments, creditors, and predators.  Such protection may even make sense for underage children so that your trust will be effective for your lifetime and beyond.

Charitable Planning Trusts
Most people give to charity out of the compassion of their hearts, and these good actions can also save significant taxes.   Charitable planning trusts can convert your highly appreciated assets and result in:

• an immediate income tax deduction
• a lifetime stream of income
• a waiver of capital gains taxes
• a waiver of estate taxes

Some examples of charitable planning:

• Charitable Gift Annuity
• Charitable Remainder Trust
• Charitable Lead Trust

The charities you select will benefit from your donation, while potentially increasing inheritance to your family and heirs.

Special Needs Trusts for Disabled Heirs
If you have a child or a loved one who is disabled or otherwise not able to care for themselves, special planning must be done to ensure that they have competent, loving care, and do not lose their government benefits.

Unfortunately, most parents fail to plan. Since there are strict asset ownership limits that must be adhered to, failure to plan may have the effect of disqualifying your child from government assistance, such as SSI. Sometimes parents leave their money to their other children, trusting that they will take care of the special needs child out of the funds they receive. However, all too often that never happens, or if it does, the child receives far less than they otherwise would have received.

With a Special Needs Trust the trustee will be able to use the trust funds to supplement the government assistance they receive. This will allow them to benefit from various government programs, while the trust provides them with things the government does not.

QTIP Trusts
A Qualified Terminal Interest Property Trust allows the deceased spouse to provide an ongoing income for the surviving spouse.  The deceased spouse designates beneficiaries for the remaining assets in the event of the surviving spouse’s death.

Family Limited Partnership
A Family Limited Partnership will lower your income and estate taxes when you set it up to own income producing property, and make gifts of limited partnership interests to the other limited partners, often your children or grandchildren.  Your young children or grandchildren then potentially pay income taxes at lower tax rates.  It is also a great way to do gifting and still keep control of the property.

Irrevocable Life Insurance Trusts
This removes your life insurance benefits from your estate so that it does not become taxable.

Second-to-die life insurance
This allows you to pay estate taxes for pennies on the dollar.