Irrevocable life insurance trust, or ILIT
Though they are exempt from income taxes, the proceeds from life insurance policies are considered part of your estate, so putting the policies in a trust for the benefit of a spouse or heirs makes sense. It's better for the trust to buy the policy, Henry says, because although you can transfer policies to the trust, if you die within three years of the transfer, the policy proceeds go back to your estate.
Henry suggests funding the trust with a gift and setting it up so the trust applies for the insurance policy and pays the yearly premiums. After you die, the proceeds of the policies will be paid to the trust for the benefit of the spouse, with the remainder going to heirs. "It's all out of the estate," he says.
Intentionally defective grantor trust, or IDGT
This is one of the trusts Romney set up for the benefit of his children and grandchildren while at Bain Capital, and it's one some business owners would consider, according to Dsurney. Shares of a privately held company that are assigned a low value are placed in the trust and allowed to grow, so that appreciation passes to the heirs tax-free. If the trust sells any assets, the grantor of the trust is responsible for paying the tax. That preserves even more of the money in the trust for heirs.
Most of the estate-planning structures used by the high net worth are "freeze techniques," says Henry, meaning the value of the asset is frozen, and appreciation escapes taxes. For those with even a tenth of the wealth of Romney, using some of these techniques can mean saving millions in estate taxes.
And if the estate tax exemption reverts to its 2003 level of $1 million in 2013, the 99 percent can benefit by doing some estate planning, too.