Credit Shelter Trusts - This type of trust can be established to ensure that the Estate Tax Exemption Amounts** of both spouses are applied to the estate. For example, the Estate Tax Exemption Amount is applied to the estate upon the first spouse's death effectively reducing tax exposure. Then, upon the surviving spouse's death, his/her Estate Tax Exemption Amount is applied to the remaining estate.
Marital Trusts - A trust which pays all of its assets to the surviving spouse. A marital trust can postpone the assessment of estate taxes but may not completely shelter your estate from taxes. When the surviving spouse dies the assets of the marital trust are included in the surviving spouse's gross estate. If the gross estate is large enough, estate taxes will then be assessed.
QTIP Trusts - This type of trust is similar to other marital trusts in that it allows the deceased spouse to provide an ongoing income for the surviving spouse. However, it is different from other marital trusts because the deceased spouse designate beneficiaries for the remaining assets, in the event of the surviving spouse's death. However, at that time, the remaining estate will be included in the surviving spouse's gross estate and subject to estate taxes.
Unlimited Marital Deduction - Federal estate tax law allows you to distribute your entire estate to your surviving spouse, tax-free, provided the surviving spouse is a U.S. citizen.
Charitable Remainder Trusts (CRT) - A CRT can convert your highly appreciated assets into a lifetime income source without incurring capital gains or estate taxes. Additionally, one or more charities you select will benefit from your donation. By establishing a Charitable Remainder Trust you can create a source of lifetime income to supplement your retirement, avoid capital gains and estate taxation, reduce current income taxes via a charitable deduction, make a significant future charitable gift, and potentially increase inheritance to your family and heirs.
Annual Gift Tax Exclusion - Each year an individual is allowed to gift as much as $12,000* to any person, married couples can gift up to $24,000*. This enables you to reduce the value of your estate and transfer it in a controlled manner over time.
The concepts contained herein are not intended to serve as advice and may have legal, tax and accounting implications. Consult your Attorney and CPA for advice.
* The annual gift tax exclusion is indexed for inflation. For the year 2006, the gift tax exclusion is $12,000 per individual; couples can gift up to $24,000.
** The federal estate tax exemption amount is $2,000,000 in 2006 increasing to $3,500,000 in 2009. The highest federal estate tax rate is 46% in 2006 and decreases to 45% in 2007-2009. The federal estate tax will be repealed on 1/1/10 until 12/31/10. Beginning 2011, the federal estate tax will be reinstated with a federal estate tax exemption amount of $1,000,000 and a maximum estate tax rate of 55%. Currently, bills are pending in Congress that, if passed, would permanently repeal or otherwise lessen the impact of the federal estate tax.
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