An Introduction to Using Trusts in Estate Planning
Key Points
The trust legally gives a trustee the power to carry out the grantor’s wishes on behalf of the beneficiaries.
The two primary types of trusts in estate planning are revocable and irrevocable trusts.
Trusts can give high-net-worth individuals key benefits including precise legacy design, advanced tax efficiency, privacy, and asset and liability protection.
In terms of wealth preservation and legacy building, trusts stand out as a versatile tool that caters to nuanced needs of the high-net-worth individual. They offer sophisticated ways to address complex estate planning needs, providing control, protection, and tax efficiency in transferring wealth to future generations. Let’s look at whether trusts might be right for you.
What Is a Trust?
Estate planning is the process that legally determines who gets your assets when you pass away. When your estate (assets) are large or complex, trusts are almost always the best option to use.
Trusts are just one component, albeit an important one. In simplest terms, a trust is a legal arrangement written by a legal professional, in which one party (the trustee) holds and manages assets for the benefit of another party (the beneficiary).
There are generally 3 parties involved:
Grantor/Settlor: The person who creates the trust and transfers assets into it
Trustee: The person or entity that manages the trust assets
Beneficiary: The person(s) who receives benefits from the trust
The trust document legally gives the trustee the power to carry out the grantor’s wishes on behalf of the beneficiaries.
Think of a trust as a carefully designed family safe—but instead of storing just valuables, it holds your complete financial legacy and wishes. The person who creates the trust (the grantor) is like the safe's designer who determines exactly how and when the contents should be accessed. The trustee acts as the guardian who follows these precise instructions. The trustee ensures that everything is distributed to the beneficiaries exactly as intended.
Just as a safe protects valuable items while making them accessible to the right people at the right time, a trust protects and transfers wealth according to your specific guidelines. And like a safe that can be opened during specific circumstances—whether it's for a child's education, a down payment on a home, or regular income distributions—a trust provides structure and protection for your family's financial future.
What Are the Different Types of Trusts?
There are many types of trusts available. For estate planning purposes, we usually talk about Revocable and Irrevocable Trusts.
Revocable Trust
Think of a revocable trust as a safe in which you maintain a master key. As the owner, you can freely access the safe, change its contents, adjust who can access it, or even completely remove the safe if your needs change. You maintain full control during your lifetime, offering both flexibility and privacy in managing your wealth. However, just like a personal safe kept within your home, the contents are still considered part of your estate for tax purposes. Your assets are likewise not protected from creditors.
Irrevocable Trust
An irrevocable trust is more like a bank vault that, once sealed, cannot be easily modified. When you place assets in this type of trust, it's similar to transferring valuables to a vault that operates under its own separate authority. While this arrangement offers less flexibility, it can provide significant advantages—such as tax benefits and enhanced asset protection—precisely because you've given up direct control. Think of it as moving your valuables to a highly secure facility with its own tax jurisdiction and protective structure.
Benefits of Using a Trust in Estate Planning
The beauty of a trust lies in its adaptability. It empowers you to define your financial legacy with precision, safeguarding your hard-earned assets while reflecting your values and goals. You retain as much control as you want. You determine the distribution terms: how much and when assets are given to beneficiaries. You can also potentially shield assets from creditors or legal claims. Certain types of trusts can offer income and estate tax advantages for high-net-worth individuals.
And, unlike a will, trusts typically will keep asset distribution details private and avoid the public probate process.
Should I Use a Trust?
For high-net-worth people, generally those who have at least $1 million in assets, trusts serve as sophisticated instruments that go far beyond basic estate planning. Here are three compelling reasons why they're particularly valuable for managing significant wealth:
Precise Legacy Design
Trusts allow you to orchestrate your legacy with extraordinary precision. You can:
Structure distributions based on age milestones or specific achievements
Protect inherited wealth from impulsive spending
Support family values by incentivizing education, entrepreneurship, or philanthropy
Create a lasting family mission that spans generations
Advanced Tax Efficiency
Strategic trust planning helps guide your wealth through the most efficient pathways by:
Potentially reducing estate tax exposure for assets exceeding the federal exemption
Leveraging generation-skipping transfer strategies for multi-generational wealth preservation
Creating opportunities for tax-efficient charitable giving while maintaining family support
Potential for Future Asset Protection and Privacy
In today's interconnected world, substantial wealth can attract unwanted attention. A well-structured trust can work like a sophisticated shield that:
Keeps family wealth matters confidential by avoiding the public process of probate
Once a trust becomes irrevocable, it can protects assets from future creditors or legal claims
Ensures business interests and family wealth remain protected during major life transitions
Shields family members from the pressures and pitfalls that can come with a publicly known inheritance
Trusts can be essential for crafting a lasting legacy. Navigating the complexities of wealth is best done with the help of an experienced estate planning lawyer in coordination with your personal financial advisor. Everyone’s situation and goals are different. At Capstone, we understand and value your personal and family relationships which enable us to assist you in leaving the legacy you desire.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review by contacting us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.