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Applied Financial Group - Woodbury, NY

The Living Balance Sheet

Estate Planning Elements

Living Will

A living will is a written statement that details the type of care you do or do not want should you become incapacitated. A living will, despite is name, is not related to a conventional will or living trust, which is used to leave property upon your death. It only includes your health care requests.

Health Care Proxy

A health care proxy is someone who has decision making powers for your health care and treatment if you cannot speak for yourself.


This is the act of giving away assets during your lifetime and can be a valuable strategy within your estate plan. While there isn’t a limit on how much you can gift, gifts are taxable if they exceed the annual exclusion and are given to someone other than a spouse or charity. As of 2014, the exclusion was $14,000.

Types of Trusts

In developing your estate planning strategy, there are a number of types of trusts to consider:

Revocable Trusts (Revocable Living Trusts)

A revocable trust, also known as a revocable living trust, means the grantor maintains complete control of the trust and can change the trust at any time. Often, this type of trust is used to maintain management of assets, to avoid probate, or to minimize estate taxes due.

Irrevocable Trusts

An irrevocable trust can’t be changed by the grantor and any property within the trust can only be distributed by the trustee as provided for in the trust. This type of trust is often used for Medicaid planning.

A/B Trusts

This type of trust splits into two trusts upon the grantor’s death. One trust serves as a Credit Shelter Trust and the other is a Marital Trust. This is designed to reduce federal estate tax liability of a married couple over the deaths of both spouses. An A/B trust can be developed within a living trust or testamentary trust.

Asset Protection Trust

This is a type of irrevocable living trust that is designed to protect assets from creditors.

By-Pass Trusts

This trust is another name for a Credit Shelter Trust, as it shelters a property from federal estate taxation. It can be developed under a testamentary trust, or a living trust.

Credit Shelter Trusts

Married couples with large estates often use this type of trust as way to avoid federal estate taxes upon the death of the first spouse to die. The assets will not be subject to federal estate tax in the surviving spouse’s estate upon his or her death, and can be transferred to beneficiaries without any estate taxes.

Charitable Trusts

This type of trust has one or more charitable beneficiaries and, if properly established, can entitle a grantor to deduct a portion of the amount contributed to the charitable trust as a current charitable income tax deduction.

Charitable Split-Interest Trusts

This trust has both charitable and non-charitable beneficiaries.

Charitable Lead Trusts

This type of trust provides for payments to one or more charities for a fixed number of years. At the end of the charitable interest, the remainder of the assets will be passed on to non-charitable beneficiaries.

Charitable Remainder Trusts

This type of trust provides payments of income or principal to non-charitable beneficiaries for a fixed number of years or for life. At the end of this lead interest, the remainder of the trust assets passes a qualified charity.

Charitable Remainder Annuity Trusts ("CRATs")

This type of charitable remainder trust pays a fixed amount to non-charitable beneficiaries each year.

Charitable Remainder Unitrusts ("CRUTs")

This type of charitable remainder trust pays a fixed percentage of the value of the trust each year to non-charitable beneficiaries.

Charitable Remainder Unitrusts with Net Income Make-up Provisions ("NIMCRUTs") 

This type of trust provides a net income make-up provision, which is generally an annual distribution of income to the non-charitable beneficiaries equal to a fixed percentage of the trust fund. If the net income of the trust is less than the fixed payout percentage, then the trust payout is limited to the net income.

Crummey Trusts

This is a life insurance trust with certain provisions that allow gifts to the trust to qualify for the annual gift tax exclusion.

Dynasty Trusts

This type of trust is often designed to last forever, with generation after generation receiving distributions from the trust.

Generation Skipping Trusts

This type of trust is specifically designed to hold the amount of property that is exempt from the generation-skipping tax under the federal estate tax laws.

Grantor Trusts

With this trust, the grantor or someone else acts as the “owner” for federal income tax purposes. The owner must report all trust income on his or her income tax return every year.

Grantor Retained Income Trusts ("GRITs")

For this type of trust, the grantor transfers property in trust, but still maintains the right to receive the trust income.

Life Insurance Trusts

This type of irrevocable trust is designed to hold life insurance on the life of the grantor or another person. The goal of this type of trust is to exclude the life insurance proceeds payable on the death of the grantor from federal estate taxes.

Qualified Personal Residence Trusts ("QPRTs")

This type of irrevocable living trust is designed to reduce the value of a personal residence for federal estate tax purposes upon the death of the grantor.

Qualified Terminable Interest Property Trusts ("QTIP Trusts")

This type of Marital Trust may be used by a grantor in a second marriage, allowing him or her to transfer the property in the trust to the surviving spouse while avoiding estate taxes.

Special Needs Trusts

This is a trust established for a person who is receiving government benefits. The purpose of this type of trust is to provide funds for someone without disqualifying him or her from receiving government benefits.

Spendthrift Trusts

This refers to any type of trust that includes certain language that provides the trustee a wide latitude in avoiding making distributions to beneficiaries when the distribution would go to a creditor, or when the trustee is concerned that the beneficiary would waste the distribution.

Testamentary Trusts

This type of trust is developed under a Last Will and Testament, and is amendable and revocable at any time during the testator's lifetime. Once the testator dies, it becomes irrevocable. This type of trust cannot be used to avoid probate.

Totten Trusts

This is an informal type of trust created during the grantor’s lifetime by depositing money into a bank account n the grantor's name as the Trustee for another person. This deposited money is not considered a completed gift until the grantor's death.