I use a poker analogy to explain trusts. For instance, there's nothing wrong with pulling in a pair of deuces—that will be enough to win some hands. But it may not cut the mustard in the World Series of Poker. So too with trust planning: Sometimes a simple pair will do, but sometimes you need a full house.

Show of Hands

One pair: The simplest trust is when mom sets up a trust for junior and names an independent trustee. So long as assets remain in the trust, they can be protected from junior's imprudence, possible divorce and other potential problems. The parent can select trustees to manage the trust and, through distributions, guide junior. The trust probably includes an annual demand (Crummey) power to assure that gifts to the trust qualify for the annual gift-tax exclusion in order to preserve mom's lifetime exemption of $1 million.

Two pair: Let's get a little more creative and add some planning zing. Let's make the trust last a long time, perhaps forever if state law permits (or if not, consider establishing the trust in a state that does permit perpetual trusts).

So long as assets remain in the trust, they can be protected from the possible wasteful ways and marital woes of junior and even junior's descendants. However, because the trust will last forever, mom can allocate some of her generation-skipping transfer-tax (GST) exemption to the trust. (This is done on a gift-tax return filed by her certified public accountant.) Now, all the growth in the trust assets will be out of the transfer-tax system forever.

Three of a kind: How can you improve on a trust that keeps the growth in assets out of the estate-tax, gift-tax, and GST-tax system forever? Supercharge it with a huge income tax benefit. The trust mom set in the two-pair example is a great plan. But every year the trust will pay income tax at a pretty high rate on any earnings.

Moreover, it looks like tax rates will rise in future years, not decline. So growth outside of the estate, while it will occur, will be mitigated by a big income tax bite. What if, instead, the trust could be structured so that mom paid the income tax on earnings? That would preserve 100% of the growth in the trust and outside of the tax system. There is a second tax benefit here, as well. Those tax payments deplete mom's estate thereby reducing her estate tax.

Full house: Let's say Dr. House wants to protect his assets from malpractice and bad ratings. What can he do? He can set up a trust in one of the many states that permits self-settled trusts. This is a trust you set up for yourself, fund with assets, from which you remain a beneficiary, but over which your creditors should have no reach. This is why these types of trusts are referred to as domestic asset protection trusts, or more affectionately by the acronym, DAPT.

So Dr. House gifts $500,000 of assets to his new DAPT, but that barely makes a dent in his net worth. So he structures his DAPT as a grantor trust and then sells substantial assets he owns to the DAPT. Because it is a grantor trust, there is no gain recognized on the sale. The DAPT gives Dr. House a note for the purchase price. Now, to the extent that the assets he sold to the trust appreciate faster than the interest rate on the note, all that growth is also removed from his estate.

Four of a kind: Your client can climb yet another rung on the trust ladder. And to use another game analogy, just remember the pitfalls in the childhood board game "Chutes and Ladders," where a single misstep can cause you to slide all the way down the tax board. With the proper advice and planning, the DAPT can morph into an even better mousetrap called a beneficiary defective inheritor's trust, or BDIT. The BDIT is the brainchild of trust guru Richard Oshins of Oshins & Associates in Las Vegas. Here's how it can build on the concepts of the poker hand mentioned above:

* Have someone other than Dr. House set up the trust. If, say, mom sets up the trust and Dr. House never makes a gift to the trust, many of the estate-tax rules that can pull a trust's assets back into your client's estate arguably don't apply. For example, if your client gives assets to a trust, but retains the right to enjoy the assets transferred (e.g., the income, or the right to live in a house that was transferred), the full value of those assets will be included in his estate.