Trusts & Estates: The Modern Landscape of Wealth Preservation

Estate planning has always been far more than the act of drafting a will. In today’s environment—shaped by complex federal tax statutes, diverse state probate regimes, and the changing nature of families—it is a discipline that demands foresight, precision, and careful balancing of competing objectives. At its most effective, estate planning preserves wealth across multiple generations, minimizes the erosion of family assets through transfer taxes, and reduces the likelihood of costly disputes among heirs. At its weakest, the absence of a deliberate plan can expose estates to probate delays, public scrutiny, avoidable tax burdens, and years of litigation.

At its core, estate planning serves three interlocking purposes: (i) determining the orderly disposition of assets at death, (ii) protecting beneficiaries during their lives, and (iii) minimizing or eliminating transfer taxes under the Internal Revenue Code (“IRC”). Each objective requires a different legal and tax framework, and together they form the foundation of a durable estate plan.

The Foundation: Wills and Revocable Living Trusts

The will remains the most basic and widely used estate planning instrument. It governs property not otherwise transferred by beneficiary designation (e.g., life insurance proceeds, retirement accounts) or by operation of law (e.g., joint tenancy with right of survivorship). However, wills must pass through probate, a court-supervised process that in many states is both expensive and public.

For that reason, many clients establish revocable living trusts (commonly called “grantor trusts”). A revocable trust allows the settlor to retain control of assets during life while ensuring a smooth transfer of those assets outside probate at death. For income tax purposes, such trusts are disregarded under IRC §§ 671–678, meaning the settlor continues to report all income until death. The advantage lies not in tax savings but in efficiency, privacy, and flexibility.

Moving Beyond the Basics: Irrevocable Trusts

When the objectives expand to include asset protection, transfer tax minimization, or intergenerational wealth transfer, irrevocable trusts become essential. Unlike revocable trusts, irrevocable trusts permanently shift ownership away from the settlor, thereby removing assets from the settlor’s estate. Examples include:

• Credit Shelter Trusts (Bypass Trusts): These use the federal estate tax exemption (currently $13.61 million per person in 2024, indexed for inflation, IRC § 2010) to shelter assets from estate tax upon the death of the surviving spouse.
  
  
• Grantor Retained Annuity Trusts (GRATs): Authorized under IRC § 2702, these allow the settlor to transfer appreciating assets while retaining an annuity stream; appreciation beyond the IRS “hurdle rate” passes free of gift tax to heirs.
  
  
• Charitable Remainder Trusts (CRTs): Governed by IRC § 664, CRTs provide income to the settlor or other beneficiaries for life (or a term of years), with the remainder passing to charity. This structure secures an immediate charitable deduction and removes the assets from the taxable estate.
  
  
• Spousal Lifetime Access Trusts (SLATs): These trusts lock in today’s historically high exemption amounts before the scheduled 2026 sunset, while still providing income access for a spouse during life.

Each structure is highly technical, governed by specific statutory requirements, actuarial assumptions, and regulatory safe harbors. A well-drafted irrevocable trust balances control, benefit, and tax compliance while anticipating changes in law and family circumstances.

Asset Protection and Spendthrift Provisions

An increasing number of families are less concerned with transfer taxes and more concerned with protecting assets from creditors, divorcing spouses, and litigation. A properly drafted spendthrift clause, recognized under the Uniform Trust Code § 502 and most state trust statutes, prevents trust beneficiaries from voluntarily or involuntarily assigning their interests and shields trust assets from most creditor claims.

Certain jurisdictions, including Delaware, Nevada, and South Dakota, have extended this principle through domestic asset protection trusts (DAPTs), which under carefully drafted provisions can even protect assets settled by the grantor. These structures remain subject to state-specific limitations and potential bankruptcy challenges, but when properly executed, they offer an additional layer of protection.

Estate, Gift, and GST Tax Considerations

The federal transfer tax system imposes three primary taxes: estate tax (IRC § 2001), gift tax (IRC § 2501), and generation-skipping transfer (“GST”) tax (IRC § 2601). Together, these taxes can claim up to 40% of transfers exceeding available exemptions. Key planning strategies include:

• Annual exclusion gifts under IRC § 2503(b) ($18,000 per donee in 2024).
  
  
• Valuation discounts for closely held businesses, typically through family limited partnerships or LLCs.
  
  
• Leveraging the lifetime exemption amount before its scheduled reduction in 2026, when it may return to pre–Tax Cuts and Jobs Act levels (roughly $5 million, indexed).

Absent planning, families with significant estates may find themselves forced to liquidate assets to cover transfer tax liabilities.

Integration with Business and Cross-Border Planning

For clients who own businesses, estate planning intersects directly with corporate structuring and succession planning. Tools such as buy-sell agreements, family limited partnerships, and dynasty trusts allow families to preserve operating control while minimizing tax exposure.

Cross-border families face even more complexity. Foreign trusts must be reported annually on IRS Forms 3520 and 3520-A, while U.S. beneficiaries may face punitive tax treatment under IRC §§ 679 and 684 if compliance is not maintained. In addition, foreign succession laws (such as forced heirship rules in civil law jurisdictions) can conflict with U.S. estate planning structures, requiring coordination with foreign counsel.

The Modern Imperative

Effective estate planning today requires:

• Mastery of federal transfer tax provisions under the IRC, including §§ 2001, 2501, 2601, and 2701–2704.
  
  
• Familiarity with state probate codes, elective share statutes, and the Uniform Probate Code where adopted.
  
  
• Sensitivity to evolving family dynamics, including blended families, nontraditional partnerships, and cross-border heirs.
  
  
• A pragmatic, business-minded approach that integrates estate planning with broader financial and corporate objectives.

In short, estate planning in the twenty-first century is no longer just about drafting a will. It is about integrating tax law, trust doctrine, family governance, and asset protection into a coherent strategy that preserves wealth and family harmony for generations to come.