Trust Structures 101: Which Trust Is Right for Your Family – and How the New Higher Exemption Changes the Conversation

As we’ve written before, estate planning, especially for those with larger or more complex estates, is not a “set-it-and-forget-it” matter. And with the 2025 passage of the One Big Beautiful Bill Act (OBBBA), it’s even more important for those working toward efficient wealth transfer for their families to review and, as necessary, update their estate planning approaches to reflect the latest changes in the tax laws.

For most affluent families, estate planning needs go well beyond the basic tools like wills. Though these are still important, achieving tax efficiency and appropriate risk management for larger estates may involve trusts and other strategies depending on the family’s circumstances.

Perhaps the greatest benefit of trusts is that they can be designed and written to accommodate an almost infinite variety of conditions. Certainly, each estate is unique—in the assets it contains, the goals of its founders, the needs and talents of its beneficiaries, and in many other ways. A carefully considered use of trusts can provide a variety of ways to solve many of the problems faced by large and complex estates.

When do I need an attorney vs. a financial advisor for trust planning?

One of the first choices that must be settled when developing an estate plan is deciding who you need on your team. While your financial advisor should be able to provide a holistic view of your investments, your holdings, and even your priorities for managing your wealth, when it comes to actually designing the trusts and other strategies for your estate, a qualified estate planning professional who is well versed in the inheritance laws of your state is essential. In other words, your financial advisor can and should guide your goals, but only a licensed attorney can draft the wills, powers of attorney, trusts, and other legally binding documents that you need for a properly designed estate plan.

Trust Basics: What Are the Different Types, and What Are They Used For?

In a previous article, we discussed various types of trusts and how they might fit into an estate plan. But to offer a quick review, a trust is an arrangement in which a trustee holds and manages assets for the benefit of people or organizations. Trusts created by the terms of a will and that take effect at the death of the creator of the trust (the “grantor”) are called testamentary trusts. In combination with a will, some estates benefit by the use of a revocable trust, which is created during the grantor’s lifetime and functions in many respects like a will. As the name implies, a revocable trust can generally be altered or revoked while the grantor is living and able to make those decisions. At death, the trust typically becomes irrevocable, and the successor trustee manages or distributes the assets according to the trust’s terms. With an irrevocable trust, the grantor generally gives up the ability to simply take the assets back or change the arrangement whenever they want. Some flexibility may remain, depending on the trust’s terms and the laws that apply. Assets properly titled in a living trust can generally pass outside probate; testamentary trusts are created through the probate of a will. Simply putting assets in a trust does not automatically remove them from your taxable estate. Revocable trust assets generally remain included, while certain properly structured irrevocable trusts can move assets and their future growth outside it.

How does the new $15M estate tax exemption affect which trust I need?

One of the most important changes to estate tax law made by the 2025 passage of OBBBA was that it removed the scheduled reduction in the federal estate and gift tax exemption. In 2026, the exemption is $15 million per person and covers taxable lifetime gifts and transfers at death combined. Married couples can potentially use both exemptions to shelter up to $30 million, although proper planning—and, in some cases, an election on an estate tax return—is needed. The exemption is indexed for inflation after 2026 under current law. Because of this higher exemption, persons with significant estates may wish to review their trust structure to evaluate whether they are getting the maximum benefit made possible by the new, higher limits.

There is another side to this decision, though. Appreciated assets inherited at death generally receive an adjustment in tax basis, which can reduce future capital gains taxes for heirs. Assets given away during life generally carry over the donor’s basis. Moving assets outside your taxable estate may mean giving up that potential adjustment. With today’s higher exemption, the income tax savings may be more valuable than the estate tax savings for some families.

The higher exemption means fewer families are likely to owe federal estate tax. For families whose estates are already above the exemption, or could grow beyond it, trusts designed to move future appreciation outside the taxable estate may still be worth considering. Several types of trusts may be useful in these circumstances.

• A spousal lifetime access trust (SLAT) is an irrevocable trust that allows one spouse to gift assets for the benefit of the other and, ultimately, heirs. The beneficiary spouse may receive distributions during their lifetime under the trust’s terms. If properly structured, the transferred assets and their future growth can remain outside the donor spouse’s taxable estate. This can be useful for couples whose estates are already above the exemption or are expected to grow beyond it.
• A grantor-retained annuity trust (GRAT) is an irrevocable trust designed to transfer future appreciation while providing fixed annuity payments to the grantor for a specified number of years. Those payments can come from investment earnings or principal. At the end of the term, any remaining assets go to the beneficiaries, such as heirs. The strategy works best when assets grow faster than the rate assumed by the IRS, allowing excess growth to pass with relatively little gift tax impact. If the grantor dies during the term, some or all of the trust assets may be included in their estate.
• An irrevocable life insurance trust (ILIT) can be used to own a life insurance policy and receive the death benefits upon the passing of the insured person (typically the owner of the estate). When properly structured and maintained, the proceeds can remain outside the insured person’s taxable estate and provide liquidity for heirs. The insured must give up certain ownership rights, including the ability to change beneficiaries. If an existing policy is transferred to the trust and the insured dies within three years, the proceeds may still be included in the estate. A properly structured ILIT may lend funds to the estate or purchase estate assets to help cover taxes and settlement expenses.

These are by no means all the different types of trusts that can be employed as part of enhancing estate tax efficiency. In fact, this underlines the importance of working with a qualified, licensed estate attorney in tandem with your financial advisor. By working together, these professionals can help you develop trust structures for family wealth transfer that take into consideration your goals and values, as well as the needs of your heirs and other beneficiaries.

Your Aspen advisor is always available to discuss these matters with you and answer your estate planning questions. Just let us know how we can help.