Which trust is commonly used to minimize estate taxes?

A charitable remainder trust is commonly used to minimize estate taxes due to its unique structure and benefits. When an individual contributes assets to a charitable remainder trust, they receive a charitable deduction for the present value of the charity's remainder interest at the time of the gift, which can significantly reduce their taxable estate. This can be particularly advantageous for those with appreciated assets, as it allows for the potential avoidance of capital gains taxes on the asset's appreciation when the trust sells those assets to generate income.

Additionally, by naming a charity as the beneficiary of the trust upon the grantor's death, the assets held in the trust do not become part of the taxable estate, further contributing to overall estate tax minimization. The income generated by the trust is paid to the grantor or other beneficiaries for a specified term or until their death, at which point the remaining assets are transferred to the designated charity.

In contrast, a living trust and a revocable trust do not provide the same tax advantages, as they do not remove assets from the taxable estate while allowing the grantor to retain control over those assets. A special needs trust is designed to provide for individuals with disabilities without jeopardizing their eligibility for government benefits, rather than specifically targeting estate tax minimization.