The Power of Estate Planning: Living Trusts

The current federal estate tax exemption currently sits at $13.99 million per individual (or $27.98 million for married couples). Given this, you might assume estate planning is not necessary. However, relying solely on this exemption can be short-sighted. One key strategy worth considering — regardless of the size of your estate — is establishing a living trust.

Here’s what you should know about the power of estate planning.

What Is a Living Trust?

A living trust, (also called a revocable trust, grantor trust, or family trust) is a legal arrangement that holds your assets during your lifetime and distributes them according to your instructions after your death. Unlike a will, a living trust allows your estate to avoid probate, the public and often time-consuming court process of settling an estate.

How It Works

Creating a living trust begins with drafting a trust document and transferring ownership of certain assets to the trust. Commonly included assets are:

• Your primary residence

• Vacation homes or investment properties

• High-value personal items such as jewelry or antiques

You’ll name a trustee to manage the trust assets. Typically, you serve as your own trustee while alive and mentally capable. Upon incapacity or death, a successor trustee (someone you’ve named), such as a family member, friend, attorney, CPA, or financial institution takes over.

A trust is revocable — so, you can amend or dissolve it at any time.

Tax Considerations

For federal income tax purposes, the IRS doesn’t view a living trust as a separate entity while you’re alive. Income and deductions related to trust assets are reported on your individual tax return.

However, under state law, the trust is considered distinct, allowing it to bypass probate and maintain your privacy.

Upon your death, assets in the trust are included in your taxable estate. Still, assets passed to a U.S. citizen spouse generally qualify for the unlimited marital deduction, sheltering them from estate tax.

Keep in mind: the generous federal estate tax exemption is currently set to expire after 2025. While the “One Big, Beautiful Bill,” recently passed by the U.S. House, proposes raising the exemption to $15 million per individual in 2026 (with future inflation adjustments), the legislation has not been made into law yet and still can change.

Avoid These Common Pitfalls

A living trust offers many advantages — but only if executed correctly. Watch out for these frequent missteps:

• Outdated Beneficiary Designations: Beneficiaries named on retirement plans, insurance policies, and brokerage accounts override the trust. Be sure these align with your estate plan.

• Jointly Owned Property: Property titled as "joint tenants with right of survivorship" bypasses the trust and transfers directly to the surviving co-owner.

• Failure to Fund the Trust: A common error is neglecting to transfer assets into the trust. Assets not retitled remain subject to probate.

When a Living Trust Isn’t Enough

While a living trust helps avoid probate and preserve privacy, it doesn’t reduce your estate or inheritance tax exposure. If your estate exceeds federal or state exemption limits, or if you're seeking asset protection or charitable planning, more advanced tools — such as irrevocable trusts, gifting strategies, or charitable trusts — may be necessary.

A Personalized Approach Is Key

A living trust can be a cornerstone of your estate plan, offering efficiency, privacy, and control. But it’s not a universal solution. To ensure your plan aligns with your goals and adapts to tax law changes, consult with us or your estate planning attorney.