Individuals with large taxable estates often own assets that rapidly appreciate in value. To save estate taxes, these appreciating assets must be eliminated from the gross taxable estate. Often these assets offer benefits like the ability to live in your home or generate considerable income that the owner cannot or does not want to relinquish. Also, the gift tax consequences of simply giving these assets away may be prohibitive.
The solution to this problem is to convey such appreciating assets to an irrevocable trust that contains special instructions. Those instructions state that at your death the trust’s assets will belong to your designated beneficiaries; therefore the assets will not be a part of your taxable estate when you die. Just as important, the instructions also state that you reserve the right for a specified number of years to still use and benefit from the property transferred to the trust. An advanced estate plan that includes an irrevocable trust can empower you to personally benefit from your property while still removing it from your taxable estate. Additionally, the asset transferred to the trust might be entitled to a valuation discount.