Trusts are a key part of your estate, tax, and investment plans, bringing you peace of mind and a clear roadmap for your heirs. Estate planning professionals recommend trusts because they offer many benefits, including avoiding probate, privacy in your dealings, the ability to own and manage multi-state properties, a way to concentrate assets, and tax efficiency.
Many clients ask whether they need a trust if they already have a will, and the answer is often yes. The death of a loved one is an emotional time, and trusts help minimize the stress and conflicts that can arise, ensuring that your beneficiaries are provided for according to your wishes.
When a trust makes sense
Setting up a trust makes sense for you if you want to optimize your estate planning. Trusts are particularly beneficial in the following situations:
- You want to avoid probate, which can be a long and public court process, by ensuring your assets are transferred privately and efficiently to your beneficiaries.
- You want to maintain privacy over your financial affairs and the distribution of your estate.
- You want to lay out some straightforward rules for how your family manages things and how distributions are handled, making sure what you want actually happens.
- You own assets in multiple states and need a coordinated approach to managing properties like .
- You have young children and want to provide for them as they grow. For example, trusts can be structured to release funds at specific ages — such as 18, 25, 30, and the remaining balance at 35 — to ensure continued support and let heirs grow into their inheritance.
- You want to consider the trust situs, or the legal jurisdiction where the trust is based, to take advantage of more beneficial tax laws.
With these considerations in mind, trusts offer high-net-worth individuals and families tailored solutions for safeguarding and managing assets, providing peace of mind, and supporting loved ones according to specific needs and circumstances.
Types of trusts and their benefits
Revocable living trust (RLT)
A revocable living trust gives someone the power to make decisions about another person’s money or property that is held in the trust. The purpose of this type of trust is to designate who receives the money (the beneficiary) and property upon the death of the person who makes the trust, also called the settlor, grantor, or trustor. The most universal advantage of this type of trust is that it avoids probate after death, which can be a lengthy and expensive process.
The trust establishes a person, known as the trustee, to make financial decisions on the person’s behalf if they become incapacitated, such as when they face a serious injury or illness.
During their lifetime, a grantor is often their own trustee, but a trust can choose to have a financial institution as their trustee instead. For more careful planning, name a successor trustee to ensure there are no issues in the event the trustee can no longer fulfill their role, such as in case of death.
Note that a living trust is not effective until the person who makes it, the grantor, puts their money or property into it. Once they do, the trustee has authority over the assets. A successor trustee then takes over for the grantor when they can no longer manage their property, with the ability to invest money or property for the benefit of the beneficiaries.
Irrevocable trust
An irrevocable trust is a type of trust created to help protect assets and decrease federal estate taxes. The grantor designates assets to transfer to the beneficiary. Unlike a revocable trust, these trusts are difficult to change or dissolve because the creator is forfeiting their ownership and authority over the trust and its assets. To make changes, they would need the beneficiary’s permission or a court order.
Irrevocable trusts are created to make the assets in them exempt from the grantor’s taxable estate, decreasing their tax liability. This is especially beneficial for large estates.
Irrevocable trusts also help avoid probate and offer privacy so details about their terms or the assets in them would not be available to the public.
There are two types of irrevocable trusts:
- A living trust (sometimes called an inter vivos trust) is formed while the grantor is alive.
- A testamentary trust is established after the grantor’s death, based on their will.
Irrevocable life insurance trust (ILIT)
The ILIT allows a beneficiary to own a life insurance policy during the insured person’s life. Upon their death, the trust oversees and distributes the policy proceeds to the beneficiary. This structure allows the policy proceeds to avoid being subject to the estate tax, which can provide significant tax savings. .
Spousal lifetime access trust (SLAT)
A SLAT gives a spouse access to assets while keeping those assets from the grantor’s gross taxable estate, which lowers their potential estate tax. With a SLAT, a spouse receives payouts from the trust. In 2026, spouses can transfer up to the federal estate and gift tax exemption limit of $15 million per individual and $30 million per couple. This amount increased by over $1 million per individual compared to 2025 because of the tax law changes in the One Big Beautiful Bill Act.
Grantor-retained annuity trust (GRAT)
A GRAT is an irrevocable trust that allows a person to transfer control of appreciating assets into the trust, receive fixed annuity payments for a set term, and pass on any remaining growth tax-free to the beneficiaries. The benefit of this trust is that it removes future appreciation from the creator’s taxable estate while using little to none of their lifetime federal gift and estate tax exclusion.
The GRAT does come with risks, though, including the grantor dying during the term or if the assets do not grow sufficiently above the IRS Section 7520 rate, or hurdle rate. The GRAT’s length can vary, but it is generally between two and 10 years. Deciding the length of the GRAT depends on how quickly you believe the asset’s value will appreciate.
GRATs are the most beneficial for families that have used up their federal gift and estate tax exclusion. A GRAT gives you the flexibility to switch out assets in the trust for other assets outside it, depending on how they perform, to help lock in benefits to the taxable estate.
Qualified terminable interest property trust (QTIP)
The QTIP trust is an irrevocable trust that protects a person’s assets on behalf of the surviving spouse while maintaining control over how the assets are distributed once the surviving spouse dies. This trust is ideal for blended families because they help a grantor with children from multiple marriages with estate planning.
Income generated from the trust is paid to the surviving spouse to ensure lifelong support, along with principal in some cases. After their death, the balance of the funds is paid to the beneficiaries, who are typically their children, family members and/or friends.
The spouse gets tax advantages because the money they receive qualifies for the marital deduction and estate taxes are not assessed until after their death. A trustee or multiple trustees are appointed to manage the trust, and these can be the surviving spouse, a financial institution, a family member, or a friend.
Charitable trust (CRT/CLT)
The charitable remainder trust is an irrevocable trust that allows you to donate property, cash, or assets to a charity and draw annual income for life or for a specific period. The trust pays income to beneficiaries, and the payments continue for up to 20 years or for life. These payments are taxable and should be reported on Schedule K-1. After the term, the remaining amount in the trust is passed on to one or more qualified U.S. charitable organizations.
The amount donated to charity must be 10% or more of the initial net fair market value of all property placed into the trust. Once assets go into the trust, they cannot be transferred out. Besides allowing you to plan your donations to charities you support, the charitable trust lets you defer income taxes on the sale of assets transferred to the trust. You may also be eligible for a partial charitable deduction based on the value of the charitable interest in the trust.
The charitable remainder annuity trust (CRAT) and charitable remainder unitrust (CRUT) are the two types of charitable remainder trusts. While the CRAT pays a specific dollar amount each year, the CRUT pays a percentage of the value of the trust each year to non-charitable beneficiaries.
Special needs trust (SNT)
A special needs trust, or supplemental needs trust, is set up to help people with disabilities or special needs receive support without disqualifying them from government benefits like Medicaid or Supplemental Security Income (SSI), which have strict income and asset limits. Placing assets or money into a special needs trust gives someone with these needs funds that don’t count as personal income and can be used for anything, though SNT funds are commonly used for medical care, housing, and transportation.
There are two types of SNTs: first-party and third-party SNTs. A first-party SNT is funded by the beneficiary and may be required to pay back Medicaid upon death, while a third-party SNT is funded by someone other than the beneficiary, and does not have a Medicaid payback requirement. This allows for remaining funds to pass to other beneficiaries upon the death of the primary beneficiary.
Domestic asset protection trust (DAPT)
DAPTs are allowed in certain states, offering the protection of the trust’s assets from the grantor’s creditors. DAPTs offer stronger asset‑protection features, even allowing someone to be both the grantor and a beneficiary. Something to keep in mind is that if a person or family lives in one state but sets up a trust in another, it could impact how well a trust can protect their assets and the rights creditors have.
Mowery & Schoenfeld Wealth Management
Mowery & Schoenfeld Wealth Management’s advisors can guide you through trust planning, optimizing tax benefits, and protecting your wealth. Our team combines tax expertise with wealth management for a unique combination that allows us to offer customized and holistic solutions. Contact us to discuss the best trust options for you.