their trusts to be as equal as possible, Cynthia gives Matthew $1.3 million worth of assets, which he places into his trust. Now they both have trusts worth $2.5 million. Plus, they incurred no gift tax because they are married. As long as their assets don’t appreciate very rapidly, and providing they live past the year 2008, their heirs won’t be subject to a large amount of estate taxes. And, if they both were to pass away in the year 2010, none of their estate would be taxed.
Irrevocable Life Insurance Trusts These are established to be the owner of your life insurance policy. Once you have passed away, the death benefit is paid to the trust and doesn’t become part of your estate. The proceeds can then be used to pay whatever estate taxes are due, or can be invested, with the interest going to benefit your heirs. This type of trust is best suited for those who have very large estates that would be subject to estate taxes.
Charitable Remainder Trust This type of trust benefits the charity, or charities, of your choice. There are two major benefits to this trust. First, you (and possibly, your beneficiaries) can receive an annual income from the interest gener- ated by the assets in the trust. Second, you can receive a tax deduction for the assets that you give each year to the trust. Then, after you (or your beneficiaries) pass away, the charity gets the principal.
There are other types of trusts, but these are the most commonly used and referred to. You may now know what type of trust you think you need, if any, but, no book can take the place of actually meeting with your attorney and financial advisor to determine what you need and what you should do. Be sure to consult with them prior to mak- ing these decisions.
WHYYOU SHOULDN’T OWNYOUR OWN LIFE INSURANCE POLICY
Perhaps the biggest estate-planning mistake I see is people owning their own life insurance policies. Many people assume, and rightly so, that by taking out an insurance policy on themselves, they are creating a liquid asset for their heirs to pay any estate taxes. This is an admirable senti-