Advanced Estate Planning: Split-Interest Gifts and Trusts

by Ellen J. Boling

There are a number of tax-planning strategies that use trusts to reduce or eliminate potential estate tax liability. Some of these trusts offer income tax savings as well, but our focus is on the estate and gift tax benefits available.

We discussed basic trusts in our June Estate Planning column (“The Tools of the Trade: Basic Estate-Planning Trusts”). The focus this month is on advanced ‘split-interest’ gifts and trusts, which are equally important tools. This type of trust includes grantor retained annuity trusts, qualified personal residence trusts, and charitable lead or charitable remainder trusts. Each of these trusts shares the characteristic that there are concurrent ownership interests in the assets that are transferred to the trust. The trust holds legal title to the assets, but one beneficiary of the trust has a current right to income derived from or beneficial enjoyment of the assets, while another beneficiary will have that right in the future. Therefore, it is important to consider not only the type of asset being transferred to the trust, but also how the value of that asset will change over time.

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