How advisors can use trusts in estate planning for clients | Financial Planning


So how can your clients have their cake and eat it too?

To plan better, advisors first need to identify how a client’s goals might be different today because of the 2017 tax changes. They may want to consider the following strategies:

  • The current estate, gift and GST tax exemption is a whopping $11.8 million, but that amount is halved in 2026, so clients should try to use as much as feasible before it is reduced. Using the exemption requires the client to make a gift that removes funds from the client’s estate (in tax parlance a “completed gift”).
  • Does the client need access to the assets given away? Without access, many clients will be uncomfortable making the large gifts necessary to use some of the expiring exemption.
  • Consult with the client’s estate planner and CPA to determine if the client would benefit from using traditional grantor trusts (the client setting up the trust and making gifts pays the income tax) or non-grantor trusts (the trust, not the client, pays income tax on trust income). Some plans, like those involving life insurance, are best held in grantor trusts. Other plans may seek to circumvent the income tax restrictions in the new law, for example to maximize charitable contribution deductions, salvage state and local tax deductions on real property or increase the 20% deduction under new Code Section 199A on pass-through business entities. Those strategies require the use of non-grantor trusts. This distinction between grantor and non-grantor trusts is critical as it requires different trust provisions. Advisors need to understand the nature of the trust’s structure, as it affects not only income tax planning but asset location decisions, as well.

How advisors can use trusts in estate planning for clients | Financial Planning

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