High-net-worth estate planning: When to consider advanced trusts in your plan

High-net-worth couples who are looking to manage estate taxes. 

Created after the death of the first spouse in a married couple, using available estate tax exclusion.

Can benefit the surviving spouse during their lifetime, but assets are generally held apart from the surviving spouse’s estate so that they can eventually pass estate tax-free to the remaining beneficiaries.

The surviving spouse may keep certain rights to the trust assets during their lifetime and may be able to tap into the income and the principal under specific circumstances.

Upon the surviving spouse’s death, the trust's assets are transferred to the remaining beneficiaries without any estate taxes levied.

May give the surviving spouse access to assets of the credit shelter trust.

The surviving spouse does not have control of the assets in the trust because the assets are overseen by a trustee.

High net-worth couples who want to remove assets from their taxable estate while still maintaining some ability to use those assets.

An irrevocable trust in which one spouse (the donor) makes a completed gift for the benefit of the other spouse (and potentially other family members). If properly structured, the transferred assets—and any future appreciation—are excluded from both the donor spouse’s and the beneficiary spouse’s taxable estates, while allowing the donor indirect access to the assets through distributions to the beneficiary spouse.

Upon the death of the non-donor spouse, the trust assets are typically transferred to the remaining trust beneficiaries (often children or grandchildren) or they can remain in the trust for the benefit of the beneficiaries.

Allows married couples to take advantage of the historically high federal lifetime gift and estate tax exclusion while retaining some access to the assets should they be needed. If properly structured, the assets and any future appreciation are not included in either spouse’s taxable estate.

Can be effective vehicles for multi-generational planning, to help shield assets from creditors and help lock in the current lifetime gift and estate tax exclusion, depending on state law and trust design.

May be beneficial for people who live in places with a state estate tax. SLATs can remove assets from an estate that could be affected by state estate taxes, even if they are likely not subject to the federal estate tax.

As an irrevocable trust, a SLAT generally can’t be changed by the donor once set up.

Generally, upon the non-donor spouse's death, the donor spouse will no longer have indirect access to the trust assets. However, special provisions can sometimes allow the donor spouse to access the trust’s assets.

Blended families and grantors wanting more control over their assets after death.

Provide for the living expenses of a surviving spouse while ensuring children from a previous marriage are also provided for.

After the surviving spouse dies, the QTIP typically distributes the remainder of the estate to the grantor’s children of the previous marriage.

Can reduce or eliminate the decedent’s estate tax because the trust’s assets can qualify for the unlimited marital deduction.

Defers estate taxes until the death of the surviving spouse, when the trust’s assets will be included in their taxable estate.

Can include provisions that prevent the trust’s assets from being excessively drawn down during the surviving spouse's lifetime.

The surviving spouse generally does not have control over the trust or trust assets, but may have access to income and some principle depending on the trust’s terms.

Individuals who have beneficiaries with special needs, such as a physical or mental disability.

Can help pay for supplemental expenses not covered by public assistance for those with a disability or chronic illness.

For a beneficiary with special needs, receiving an inheritance can potentially jeopardize eligibility for government benefits such as Social Security, Supplemental Security Income or Medicaid.

A properly structured and administered special needs trust avoids that possibility by providing only for qualified expenses — those not covered by federal or state benefits. A trustee makes those expense payments so that no money from the trust flows to the dependent directly, which could potentially affect government benefit eligibility.

Special needs trusts can be expensive to set up and maintain

High-net-worth individuals or families who want to benefit multiple generations while managing gift, estate and generation-skipping transfer taxes.

A type of irrevocable trust aimed at benefiting multiple generations of a family.

Grantors can set rules for how the money is to be managed and distributed to beneficiaries.

Can last for many generations, helping to create a long-term legacy and potentially reduce estate and generation-skipping transfer taxes, if structured properly.

May provide creditor protection, depending on applicable state law and trust structure.

May help shield trust assets from division in divorce, depending on applicable law and trust administration.

A dynasty trust is an irrevocable trust, effectively removing control of the trust from you and your beneficiaries. The assets are overseen by a trustee, according to the provisions of the trust.

Changes in tax or trust law over time may affect how dynasty trusts operate, so it is important to include provisions (e.g., trustee powers or trust protectors) that allow for flexibility if laws change.

High-net-worth individuals facing significant estate tax liability.

Especially popular with people who have rapidly appreciating assets, such as shares in a successful startup company.

Irrevocable trust that allows the trust’s creator to direct assets into a trust, removing future appreciation above the IRS assumed growth rate from the grantor’s estate.

This allows the assets to pass to beneficiaries with reduced estate or gift tax liability.

During the term of the GRAT, the trust pays an annuity to the grantor, so that most of the assets moved into the GRAT are considered returning to the grantor and therefore, are not subject to gift or estate tax implications. Only the calculated present value of the remainder benefit is subject to gift taxation.  

Any assets left after the annuity payments can then be passed to beneficiaries, reducing the size of the grantor’s estate and the impact of future estate taxes.

Can limit the use of your lifetime gift tax exclusion amount utilized for lifetime gifts. Appreciation in the trust faster than the IRS assumed rate can be passed to children while not diminishing the grantor's lifetime exclusion from estate and gift taxes.

Should the grantor die before the end of the GRAT term, some or all of the trust assets may be returned to the grantor’s estate and are counted for estate tax purposes. To address this, a “rolling GRAT” strategy can create a series of consecutive short-term GRATs with each successive GRAT funded by the previous trust’s annuity payments, minimizing the risk of the grantor passing away during the term.

The grantor transfers assets to an irrevocable structure and relinquishes control over the remainder interest.

The trust assets must appreciate faster than the assumed IRS rate for this strategy to be effective.