Originally Posted by mathjak107
Can you explain how it would work in an ir-revocable or marital trust* ?
This gets complicated.* Why do you think we need lawyers?*
* If I understand correctly, and I am not an estate planning lawyer, there are several types of trusts you can use for estate and tax planning.* If you have significant assets and are worried about estate taxes, you can use a bypass trust or credit shelter trust, which will allow both the husband and the wife use their estate tax credit fully.* For example, say you have 2 million and your wife has two million.* You die, she inherits your 2 million.* No estate tax is paid when assets go to the spouse.* Now she has 4 million.* She dies, but she can only shelter 2 million from federal estate tax. If you leave your 2 million to the bypass trust, it isn't taxed by the feds when you die because of the 2 million exemption and isn't taxed when she dies because it isn't hers, though she might have some rights to income under the trust.
Another variation in the QTIP trust, which is sometimes also used by the wealthy with a bypass trust to help minimize taxes.* If you use a QTIP trust, your estate isn't taxed.* However, your wife's estate would be when she dies. Under this trust, your wife would get the income and odds are your children would get the trust assets when your wife dies.* Taxes would be paid at that time.* You might give some of your assets to the bypass trust and some the the QTIP.
There are other variations and other trusts that are used for "rich people" estate planning.* or example, there are some states that allow trusts to go for more than one generation.
There are also simple revocable trusts used to avoid probate or to manage assets when your children are young.* These types of trusts do not avoid estate taxes. And, one way or another someone will pay taxes someday.
EDIT: terms here, like bypass trust and QTIP trusts are used slightly differently in different areas, but both refer to trusts set up to allow spouses to have some degree of access to the trust, with what left going to the kids.