This article provides a guide to the wide range of trust models that exist in the US, how they are used and what their advantages and drawbacks are.

Trusts come in all shapes and sizes, and the author – Rob Coleman (pictured below), an associate in Musick Peeler LLP  â€“takes us on a tour around the US trusts landscape, explaining the roles different models play. With tax-filing season top of mind, this is a timely article. (More detail on the author below.) The editors are pleased to share this material and invite readers to respond. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com if you wish to react. 

Rob Coleman

According to the Capgemini Research Institute’s World Wealth Report 2024, the United States added 500,000 new millionaires last year, reaching 7.43 million and marking a 7.3 per cent boost from 2023. It is also reasonable to assume that many of these newly-minted millionaires, along with the previously existing 6.9 million, can make critical mistakes with their wealth, leading to losses or hefty tax payments. 

In today's complex financial and legal landscapes, high net worth individuals face significant challenges in preserving and transferring wealth. When considering trust structures for estate tax reduction, align your choice with your financial situation and unique goals. A few considerations include your income requirements, family dynamics and the needs of your beneficiaries as well as your philanthropic objectives. 

With federal estate tax exemptions subject to change due to the scheduled sunset of the Tax Cuts and Jobs Act of 2017 (TCJA), strategic trust planning has become an essential tool for minimizing estate tax liability. Let’s explore why you need to act in 2025 and the various trust structures that can help protect your assets and reduce your taxable estate. 

The US estate and gift tax
The US estate and gift tax is a unified federal transfer tax applied to assets transferred either during life (gift tax) or upon death (estate tax), with an exemption amount ($13.99 million per person in 2025) and a top tax rate of 40 per cent. Transfers exceeding annual gift exclusions ($19,000 per recipient in 2025) or lifetime exemptions may trigger taxes, making strategic planning essential for wealth preservation.

The TCJA significantly increased the estate tax exemption, but these elevated exemption levels are scheduled to expire on December 31, 2025. Unless Congress takes action to extend or reauthorize the TCJA provisions, exemptions will revert to approximately $5 million (adjusted for inflation) effective January 1, 2026. With no current indication that an extension is forthcoming, the next eight months present a crucial window for implementing proactive estate planning strategies to protect more of your wealth.

What type of trust do I need? 
All trusts can be divided in two categories: revocable or irrevocable. Simply put, revocable trusts can be amended or revoked at any time by the “grantor” (i.e., the person creating the trust), while irrevocable trusts generally cannot be modified once established. Notably, a revocable trust almost always becomes irrevocable upon the death of the grantor. 

The cornerstone of the estate plan: The family trust or “living” trust
A "living trust," which is a type of revocable trust, is the cornerstone of a family's comprehensive estate plan. It is designed to manage and protect assets during the grantor’s lifetime (and joint lifetimes in case of married grantors) and to facilitate the smooth transfer of wealth to heirs upon death, while minimizing probate costs, maximizing available tax exemptions, and preserving privacy.

Within a family estate plan, a living trust can be customized through various sophisticated arrangements to address specific family goals, tax considerations, and asset protection needs:

-- AB Trust (Credit Shelter Trust): Upon the first spouse's death, an AB Trust divides into two trusts – the Survivor's Trust ("A" Trust), which supports the surviving spouse, and the Decedent’s Trust ("B" Trust or Credit Shelter Trust), protecting assets for beneficiaries and utilizing estate tax exemptions;
-- ABC Trusts: An expansion of the AB Trust, creating three distinct trusts: the Survivor’s Trust (A Trust), the Bypass or Decedent’s Trust (B Trust), and a Marital or QTIP Trust (C Trust), strategically managing assets, taxation, and beneficiary distributions; 
-- Disclaimer Trust: Allows flexibility, enabling the surviving spouse to choose, after the first spouse's death, whether to disclaim certain assets to a Bypass Trust for potential estate tax savings, based on the family's situation at that time; 
-- All-to-Survivor Trust: Transfers all assets directly to the surviving spouse, simplifying administration and granting complete control, while potentially foregoing tax-planning benefits; 
-- Dynasty Trust: Created to last for multiple generations, this trust structure preserves significant family wealth, provides asset protection, and leverages Generation-Skipping Transfer Tax (GSTT) exemptions to avoid repeated taxation through successive generations; 
-- Marital Trust: Provides income and possibly principal distributions exclusively for the surviving spouse, typically qualifying for the marital deduction to defer estate taxes until the second spouse passes away; 
-- Qualified Terminable Interest Property (QTIP) Trust: Ensures that the surviving spouse receives income for life, while the grantor retains control over who ultimately inherits the trust assets – often utilized in blended families or second marriages; 
-- Decedent’s Trust: Created upon the first spouse's death within AB or ABC trust planning, it preserves estate tax exemptions and protects asset distribution according to the deceased spouse’s wishes; and 
-- Survivor’s Trust: Established from the revocable trust assets allocated directly to the surviving spouse, providing complete control and access during the survivor’s lifetime.

Whatever form of family trust you create, it will serve as the cornerstone of your comprehensive estate plan, and include your core objectives for wealth preservation, tax planning, future distributions to beneficiaries, protection against creditors, and blended family issues.

Enhancing the estate plan with an Inter Vivos irrevocable trust
Inter vivos irrevocable trusts are created during a grantor’s lifetime to enhance and complement the estate plan. Unlike the family trust which becomes irrevocable after the grantor’s death, these trusts are created as irrevocable trusts. These trusts are designed to remove assets permanently from the grantor's estate, offering substantial estate tax planning advantages, asset protection, and wealth preservation strategies. Common examples include:

-- Irrevocable Life Insurance Trust (ILIT): Holds life insurance policies outside of the grantor's taxable estate, thereby excluding death benefits from estate taxation, preserving more wealth for heirs; 
-- Spousal Lifetime Access Trust (SLAT): Allows a grantor to remove assets from their estate by transferring assets into a trust benefiting their spouse (and potentially descendants), providing both estate tax benefits and indirect access to trust assets through the beneficiary spouse; 
-- Charitable Remainder Trust (CRT): Enables the grantor to donate assets to charity while retaining a lifetime income stream or term interest, ultimately reducing estate size and obtaining significant income and estate tax deductions; 
-- Qualified Small Business Stock (QSBS) Trust: Holds qualified small business stock that may benefit from substantial capital gains exclusions, allowing growth in these assets to occur outside of the grantor's taxable estate; 
-- Grantor Retained Annuity Trust (GRAT): Allows the grantor to transfer assets appreciating faster than IRS interest rates, effectively moving growth out of the estate, while the grantor retains a fixed annuity payment for a term; 
-- Intentionally Defective Grantor Trust (IDGT): Structured to remove appreciating assets from the grantor's estate, while the grantor remains liable for income taxes generated by trust assets, further enhancing wealth transfer effectiveness; and 
-- Qualified Personal Residence Trust (QPRT): Permits the grantor to transfer a primary or vacation home out of their estate while continuing to reside in it for a set term, significantly reducing estate tax implications associated with valuable real estate.

Inter vivos irrevocable trusts are integral in sophisticated estate planning, supplementing the family trust by strategically reducing estate taxes, protecting assets from creditors, and efficiently managing wealth for future generations.

Charitable trusts: Philanthropy and tax efficiency
One such inter vivos irrevocable trust is the Charitable Remainder Trust (CRT). A CRT allows a grantor to transfer assets to a charitable organization – such as their church, alma mater, or favorite charity – while maintaining an income stream from those assets either for a defined period or for the lifetime of the grantor or another beneficiary, such as a spouse. Upon completion of the specified term or upon the beneficiary’s death, the remaining trust assets (the "remainder") are distributed to the designated charity.

Like other inter vivos irrevocable trusts, CRTs effectively reduce the grantor’s taxable estate. Additionally, CRTs typically provide an immediate income tax deduction based on the present value of the remainder interest gifted to charity, and they can significantly mitigate capital gains taxes on highly appreciated assets. For instance, grantors often fund CRTs with low-basis assets that would otherwise incur substantial capital gains tax upon sale.

Ideal candidates for a CRT include:
-- Individuals holding appreciated assets seeking tax-efficient liquidation strategies; 
-- Those desiring a guaranteed lifetime income stream for themselves or their spouse; and 
-- Individuals looking to reduce their taxable estate as part of comprehensive tax planning.

In short, a CRT serves as an effective philanthropic and financial planning tool, balancing income generation, tax efficiency, and charitable giving goals.

Strategic estate planning in 2025
Benjamin Franklin famously stated, “In this world, nothing is certain except death and taxes.” Yet the specific timing and amount of taxes owed often remain uncertain, particularly given the looming expiration of the higher estate tax exemptions introduced by the TCJA.

Effective estate planning doesn't seek absolute certainty about future changes – in laws, family dynamics, or wealth – but rather aims to build a flexible and adaptable strategy. A robust estate plan should be structured to withstand various scenarios and adapt to evolving circumstances, ensuring optimal outcomes regardless of future developments. Given potential shifts in tax legislation and personal situations, it is essential to regularly review and refine your estate plan with experienced professionals.

Consulting with a qualified estate planning attorney is invaluable for exploring and understanding the diverse strategies available to high net worth families.

About the author

Rob Coleman is an associate in Musick Peeler LLP’s Los Angeles office. Coleman is an experienced transactional attorney whose areas of practice include estate planning, trust administration, real estate transactions, and corporate and non-profit governance. Additionally, he has served as corporate counsel to a variety of California and Nevada-based companies, including a residential mortgage bank, an escrow company, a sports nutrition distributor and retailer, and several non-profits.