Five Ways to Optimize an Estate Plan Using Trust and Estate Strategies

Wealth planning goes beyond growing assets—it protects them and ensures their efficient transfer to the next generation. To that end, estate and legacy strategies can minimize tax exposure and legal hurdles.  In 2025, the federal exemption is $13.99 million per individual and $27.98 million for married couples, with estates above these thresholds taxed at 40%. State estate taxes may also apply; for example, Massachusetts imposes rates of 0.8% to 16% on estates valued at $2 million. Proper use of trusts and other planning tools can substantially reduce these liabilities. Here are five strategies to help organize your estate plan.

1. Avoid Probate with Revocable Living Trusts

Probate, the court-supervised process of distributing a deceased individual’s estate, can be time-consuming, expensive, and public.  Probate can take six months to more than a year, and its fees can consume 3% to 7% of an estate’s value.

A revocable living trust allows an individual’s assets to transfer directly to beneficiaries, bypassing probate and potentially saving thousands of dollars. These trusts are flexible during the grantor’s lifetime, allowing them to change beneficiaries or terms as needed. Upon the grantor’s passing, the trustee (previously designated) manages the trust assets per the grantor’s specifications. Revocable living trusts reduce legal and administrative costs and maintain privacy, since trust documents are not public records.  

2. Minimize Estate Taxes with Irrevocable Trust Structures

Trusts can reduce the size of a taxable estate—one of the smartest ways to minimize tax impact.  Irrevocable trusts place assets under the control of a trustee, thereby removing them from the estate.  This limits estate tax exposure and shields assets from creditors and lawsuits.  Here are a few types of irrevocable trusts and their primary benefits:

• Irrevocable Life Insurance Trust (ILIT): An ILIT holds a life insurance policy outside an estate, potentially saving up to 40% in estate taxes on a multi-million-dollar payout when the death benefit is part of the exclusion.  ILITs often cover estate tax obligations without adding to the taxable estate.
• Grantor Retained Annuity Trust (GRATs): This trust allows a grantor to transfer appreciating assets to beneficiaries with minimal or no gift tax. The grantor retains an annuity for a set term, and any growth beyond the Internal Revenue Service’s assumed rate of return passes to heirs tax-free. GRATs are especially effective in low-interest-rate environments or for assets expected to appreciate significantly.
• Spousal Lifetime Access Trusts (SLAT):  For married couples, one spouse creates this irrevocable trust for the benefit of the other. It removes assets from the taxable estate while allowing indirect access to income through the spouse. SLATS can reduce estate taxes without sacrificing access to funds during their lifetime.

3. Protect Beneficiaries Through Structured Trusts

Trusts provide important safeguards for heirs. For example, a Spendthrift Trust limits a beneficiary’s access to trust funds and prevents creditors from making claims against it. This structure is especially beneficial for beneficiaries who are minors, financially inexperienced, or facing liabilities such as divorce or litigation.  A Special Needs Trust (SNT) ensures that a loved one with a disability can receive financial support without disqualifying them from government assistance programs like Medicaid or Supplemental Security Income (SSI). According to the Centers for Disease Control (CDC), nearly 25% of U.S. adults live with a disability, making SNTS an essential component in many estate plans.

4. Incorporate Charitable Planning for Tax Efficiency and Legacy

Charitable trusts can accomplish dual objectives, reducing a taxable estate and supporting philanthropic causes. A Charitable Remainder Trust (CRT) allows an individual to donate assets to a qualified charity while retaining income for life. The donor receives an immediate charitable income tax deduction when they establish the trust, based on the projected value of the trust going to charity. After the benefactor passes, the remaining assets go to the designated charity. Conversely, a Charitable Lead Trust (CLT) donates income to charity during a fixed term, after which the remainder passes to heirs, often at a reduced or zero estate tax cost.

5. Conduct Periodic Reviews to Adapt to Life and Law Changes

Estate planning requires updates as major life events like marriages, divorces, births, and deaths can impact it, as can changes in tax law.  The current 2025 estate exemption is set to sunset at the end of the year, barring changes to renew it.  In 2026, the estate tax could revert to levels predating the Tax Cuts and Jobs Act with adjustments for inflation. This change could double the number of taxable estates in the U.S.

Regular reviews, ideally, every 2 to 3 years or after major life changes, allow individuals to reconsider and realign their wealth plan with their priorities, financial goals, tax exposure, and family dynamics.  Importantly, they ensure no unintended beneficiaries, outdated fiduciaries, or missed tax-saving opportunities.

Trusts and estate strategies can benefit everyone, from the ultra-wealthy to everyday earners. As essential components of any well-rounded financial plan, trusts can protect heirs and support charitable causes. Offering measurable advantages, trusts can reduce taxes and legal costs.  Proactive planning today can prevent significant losses tomorrow, especially in a dynamic financial climate.

If you are interested in devising a legacy plan or looking to enhance the efficiency and effectiveness of the one you have, contact us at SHP Financial for a complimentary review of your finances.