Lars has explained to Nils the likely estate tax benefits of giving $500,000 to a trust for relatives this year. Nils is able to do this without immediate tax because the formerly $1 million gift tax exemption (the amount one may give during lifetime without paying gift tax) was increased to $5 million for 2011 and 2012. Nils had already used the $1 million exemption.
One benefit Lars has pointed out, is that future income and gain on the $500,000 will occur outside Nils's taxable estate, rather than within it. Lars has a guess on how that will work out. Nils, in his eighties, has a remaining life expectancy of only about six years (although his hardy and determined nature seems to promise more). The trust is likely to have about $200,000 of income and gain over the six years. If we figure the combined State and Federal estate tax rate will be 50% when Nils dies, then this should produce about $100,000 in savings for Nils's estate.