A Revocable Trust is a trust in which the grantor, the trustee and the beneficiary are usually the same person. The trust can be revoked or amended until that person's death. Upon death, the trust property avoids probate and passes in trust for the beneficiaries. In California, married couples usually create a joint revocable trust (rather than separate revocable trusts) in which they both are grantors, trustees and beneficiaries.

Annual exclusion gifts (currently $11,000 for 2005, and will become 12,000 starting in 2006 ) may be made to a trust only if Crummey withdrawal rights are given. Otherwise it does not qualify for the annual exclusion and uses some of your estate and gift tax exemption. Crummey trusts are often used for life insurance, but can be used for other trust assets too.

A Charitable Remainder Trust ("CRT") is an irrevocable trust in which grantor retains an annual payment until the end of the trust term (usually the grantor's and grantor's spouse's deaths). At the end of the term, the trust assets pass to charity. The grantor gets an income tax deduction for the gift to the trust. Since the CRT is exempt from income taxes, its trustee can sell an appreciated asset with no income tax due until the income is distributed from the CRT to the non-charitable beneficiary - usually the grantor or the grantor's spouse.

Personal Residence Trusts (also Qualified Personal Residence Trusts, or "QPRTs," and personal residence grantor retained income trusts, or personal residence "GRITs") are irrevocable trusts to which a settlor transfers his or her home or vacation home, retaining a term of years for occupancy and then permitting the property to pass to remainder beneficiaries. There is a present gift (of a "future interest" that does not qualify for the $11,000 gift tax annual exclusion) to the remainder beneficiaries. The value of this gift is equal to the value of the home less the value of the interest retained by the settlor (determined under government tables). So long as the settlor survives the entire term of years which he or she has retained, the technique will save a significant amount of tax; however, if the settlor dies before the end of this term of years, the property will be included in the settlor's gross taxable estate for federal estate tax purposes.

Rather than leaving all of a deceased spouse’s assets to the surviving spouse, you carve out of the deceased spouse's estate the portion of the property exempt from tax (currently $1,500,000, becoming $2,000,000 in 2006). Placing this amount in a bypass trust avoids this tax on the death of the surviving spouse while providing the spouse with money to maintain the standard of living both spouses enjoyed together. Since the trust bypasses estate taxes, it is sometimes called a "bypass trust." Other terms commonly used for this trust are the "exemption equivalent trust" and the "credit shelter trust." The trust may continue for the benefit of any person (typically the settlors' children) following the surviving spouse's death. Finally, the bypass trust can give the surviving spouse all the income, or distribution may be left to the discretion of the trustee.

A defective trust is an irrevocable trust that is out of the grantor's estate for estate and generation-skipping transfer tax purposes, but not for income tax purposes. Since the income is taxable to the grantor, the trust grows income tax-free! Similarly, the grantor's payment of the income tax on income earned by the trust reduces the grantor's taxable estate and thus is the functional equivalent of a tax-free gift! Furthermore, the grantor can engage in transactions with the defective trust on a tax-free basis under Revenue Ruling 85-13.

The sale of an asset by the person who is treated as the "owner" of the trust for income tax purposes (i.e., either the grantor or the beneficiary) is an income tax-free transaction. In the typical transaction, assets subject to a valuation discount (such as family limited partnership interests) are sold to the defective trust in exchange for an interest-only promissory note with a balloon payment. In the right situation, this technique is very effective to move significant wealth out of your estate with no gift tax liability.

A Family Limited Partnership ("FLP") can provide estate and gift tax savings since the fair market value of a limited partnership interest is generally discounted to reflect (1) its lack of control, (2) its lack of marketability, and (3) the partnership restrictions. A FLP also provides a layer of asset protection from the partners' personal creditors.

A Limited Liability Company ("LLC") can provide estate and gift tax savings since the fair market value of a minority or non-voting LLC membership interest is generally discounted to reflect (1) its lack of control, (2) its lack of marketability, and (3) the LLC transferability restrictions. A LLC also provides a layer of asset protection from the partners' personal creditors. Unlike a Family Limited Partnership (in which the general partners are personally liable for partnership debts), no member of an LLC is personally liable. Therefore, an LLC is often used to own a business or a piece of real estate in order to protect the client from personal liability.

A Private Foundation is an entity set up by a family to make charitable gifts. For maximum flexibility, it is usually structured as a not-for-profit corporation. The name of the Foundation usually includes the names of the donors. Rather than making gifts directly to charities, the gifts can be made to the Foundation which can then distribute funds to public charities in the discretion of the board of directors. The board of directors is usually made up of family members. The directors can take reasonable salaries. For most Foundations, a minimum of five percent of the Foundation's assets must be distributed to qualifying charities (or used for certain expenses) each year. The donor receives an income tax deduction for a gift to the Foundation.