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Personal Financial Planning

Notes
Figure 12.2: Tools used for estate planning during the lifetime of an individual

Gifting

By implementing a gifting program, an estate owner can dramatically reduce the size of the
taxable estate. If an estate owner doesn’t need an asset to live on, it may make sense to give the
asset away, since the recipient will likely be the person who would receive the asset at death.
The advantage of gifting property while living is that the appreciation in the value and income
from the gifted asset is removed from the estate. However, the estate owner who gifts property
must realize that once the property is gifted, the estate owner loses all benefits and control of the
property. Further, the income tax consequences (basis issues) must be also considered when
gifting is contemplated.
Gift recipients can be anyone. For example, parents could conceivably give gifts to each child;
grandparents could gift property to each child and grandchild. You can see the potential for
large federal estate tax savings if a significant amount of property is gifted.

Trusts

A trust is used in estate planning to manage or dispose of property, either during the grantor’s
lifetime or after death. A trust can hold virtually any kind of property...real or personal...tangible
or intangible, and can be as flexible as it needs to be to meet the estate owner’s objectives.
Distributions from a trust can be arranged in any manner the grantor desires...in amount,
frequency or for whatever purpose defined by the grantor.
Trust beneficiaries can generally be anyone or any institution named by the grantor.
The trust can be designed so that it can be changed whenever the grantor deems necessary
or it can be set up so it may not be changed or revoked.

The trust can be established while the grantor is living or at death.
Trusts are created for a variety of reasons:
Asset management - the grantor or beneficiaries of the trust may lack the expertise
to manage a large portfolio of assets.

To benefit the grantor - the grantor can receive income from the trust and control its
assets.
To benefit or protect others (minors, elderly, or incompetent persons) - trusts can be
set up for the care of minor children or incompetent persons.

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