Trusts can be vehicles to provide for certain actions to take place with the best possible tax consequences. Trusts, if used, should be prepared in conjunction with a Will, which ensures that any remaining assets (such as furniture) are transferred to your beneficiaries.

While there are many benefits to a trust, there are also some disadvantages. Most trusts involve some degree of loss of flexibility or control over your assets. The following are some of the more common types of trusts:

Revocable (or "Living") Trust: A revocable trust will not save estate taxes and frequently saves little, if any money in probate costs. Probate in Louisiana is simple and inexpensive. This type of trust has received much recent publicity but it is not always advantageous. Privacy is frequently cited as a reason to create a living trust. However, Wills rarely list a testator's specific assets and therefore rarely will anyone reading a Will get any sense of the value of the testator's estate. The benefits of creating a living trust are frequently not worth the cost of drafting a living trust, transferring assets to it during life, and using it until death.

Irrevocable Trust: An irrevocable trust is sometimes created by individuals who have the ability and inclination to relinquish control over a sizeable part of their estate. If your estate is valued at more than the amount exempt from federal estate taxes ($1,500,000 in 2004 and 2005), this may be an effective tool. The property transferred to such a trust, and the appreciation on that property between the time you gift the property to the trust and the time you die, escape estate tax in your estate. The income on the property transferred is also outside the estate. You may name the recipient of the assets, income, or principal of the trust. Because the transfer is considered a gift to the trust, a gift tax will be imposed, but the net effect may still be a positive one.

One popular use of an irrevocable living trust is to shelter the proceeds of a life insurance policy from federal estate tax. The most effective way of using life insurance in conjunction with a trust is to have the trust buy the policy. In the alternative, if you transfer existing policies to a properly designed trust, the proceeds will pass to the beneficiaries of the trust free of federal estate tax.

Keep in mind that there are restrictions on the extent to which such a trust can protect your heirs from estate taxes. If the trust is created shortly before death, it will probably not have the desired effect. On the other hand, if the testator survives at least three years after the transfer, the assets in the trust will likely not be considered part of the estate and will not be subject to federal inheritance taxes.

Bypass (Family) or Credit Shelter Trust: The key in estate planning is to utilize both the unlimited marital deduction (if you have a spouse) and the $1,000,500 exemption equivalent. This is done by having all of a decedent's estate except that $1,000,500 passes to (or in trust for) the surviving spouse. That excess will not be taxed because of the unlimited marital deduction. The $1,000,500 exemption equivalent amount is then frequently placed in trust for the benefit of the surviving spouse. This trust is known by many names, among them being the exemption equivalent trust, bypass trust, and the credit shelter trust. The assets in this trust are taxed in the estate of the first spouse to die and the surviving spouse is not considered to have control over it, the value at his or her death is not included in his or her estate. Therefore, no tax is paid on that $1,000,500. The surviving spouse can now use his or her own $1,000,500 exemption equivalent on his or her death to the best advantage. This allows the spouses to pass on a combined $2,001,000 free of federal estate taxes.

Marital Trust: Through this vehicle, you can provide for your spouse without leaving your property directly to him or her. You may appoint another individual to act as trustee or co-trustee with your spouse (or in some instances the spouse may serve as sole trustee), with your spouse as sole beneficiary, and the trust will qualify for the marital deduction.

Other trusts which may be useful under certain circumstances include:

Minor's Trust: If you and your spouse both die, a minor's trust will hold your assets for your children until they reach the age of majority.

Charitable Trust: A charitable remainder trust provides you with an income-tax deduction while the income from the assets is paid to you or a beneficiary; upon the termination of the trust, the charity receives the principal. A charitable lead trust provides a charity with the income from your assets, paid over a certain amount of time, after which the assets pass to your heirs.