How the 2025 Tax Law Impacts Your Estate Plan

September 10, 2025

The recently signed One Big Beautiful Bill Act of 2025 covers a vast amount of ground. It may take some time before every aspect has been thoroughly examined. For now, a recent article appearing in Forbes, “10 Reasons To Reevaluate Your Estate Plan Following The 2025 Tax Law,” offers a good overview of how the 2025 tax law impacts your estate plan and taxes.

Estate and Gift Tax Exemptions: The federal estate, gift, and generation-skipping transfer tax exemption is now set at $15 million per individual and $30 million for married couples. This extremely high exemption is particularly beneficial to high-net-worth families.

How Permanent Is the Exemption? While this may seem unlikely now, remember that estate planning is a long-term strategy. If political power shifts, the exemption could be undone. Proactive planning remains essential to safeguard legacies.

Trust Income Taxation: The 2025 law permanently modifies trust income tax brackets and rules. This may be a good time to evaluate trust structures to minimize taxes and make sure that your heirs don’t give more to the government than necessary.

State-Level Estate and Inheritance Taxes: Certain states tie their own estate taxes to federal tax rates, while others have separate systems. Review your state’s estate and/or inheritance taxes.

Long-Term Care Costs and Medicaid Adjustments: Those who rely on public benefits for healthcare or whose loved ones depend on Medicaid and other government programs need to prepare for upcoming cuts. Private LTC insurance and Medicaid planning are more important now than ever for middle-class Americans who want to protect the money they have earned over a lifetime.

Long-Term Care Insurance Deductions: Qualified long-term care insurance premiums remain deductible, and the deduction may increase because of the new law. Verify if your policies meet the requirements.

Retirement Accounts and Income Tax Strategies: Permanent changes were made to individual income tax provisions impacting IRAs, Roth conversions and income shifting strategies. You’ll want to ensure that your retirement accounts align with your estate plan to minimize taxes.

Business Succession and Asset Management. Changes have been made to valuation rules and succession planning, so any buy-sell agreements, liquidity planning and leadership transition plans should be reviewed by an experienced estate planning attorney.

Family Legacy and Estate Goals: Whenever there is a significant change to tax laws, estate plans should be reviewed to ensure they take advantage of any new opportunities. Consult with your estate planning attorney to determine how the new laws will impact your estate plan, including charitable giving plans, and to identify any necessary changes.

Speak with your estate planning attorney to see how the 2025 tax law will impact your estate plan. Whether it is a minor change, or a significant one, being aware of changes in tax law is critical. If you would like to learn more about how tax laws impact your estate planning, please visit our previous posts.

Reference: Forbes (July 7, 2025) “10 Reasons To Reevaluate Your Estate Plan Following The 2025 Tax Law”

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How Wealth is Distributed in Blended Families

September 2, 2025

This summer’s passing of Ozzy Osbourne was mourned by heavy metal fans. Whether you liked his music or not, Osbourne left an estate estimated to be worth $230 million plus future royalties, reports a recent article from Think Advisor, “What Wealthy Families Can Learn From a Rock Star’s Estate.” It caught the attention of estate planning attorneys for lessons about how wealth is distributed in blended families. Whether you liked his music or not, Osbourne left an estate estimated to be worth $230 million plus future royalties, reports a recent article from Think Advisor, “What Wealthy Families Can Learn From a Rock Star’s Estate.”

There’s no estate battle for now. However, only time will tell if the Osbourne family faces issues like those of many blended families. There’s no simple playbook for these situations, and the best outcomes require the counsel of an experienced estate planning attorney and savvy planning.

Creating trust structures to balance a surviving spouse’s financial well-being with inheritances for children from prior marriages takes knowledge and experience. A plan needs to be proactively created and regularly revisited to affirm the choices made. The challenge is anticipating potential disputes.

An ill-conceived plan would be to place all the assets in a single trust to benefit the surviving spouse during their lifetime and then have the assets flow to the biological children after their death. This sounds like a good solution. However, the arrangement puts the surviving spouse’s interests at odds with those of the children. They’re waiting for the surviving spouse to die for their inheritance and have no control over how much money is spent. They might end up with nothing, despite the best intentions of the deceased spouse.

Another solution with potential for disaster is creating an estate for the benefit of the surviving spouse and putting one or more of the biological children in charge of the estate in an attempt to balance the structure. The surviving spouse is now dependent upon the biological children to ask for money, which can create more problems than it solves.

A controlling trustee is often considered a potential solution for blended family estate plans. If the surviving spouse is intent on blowing through the money, the children can go to court and file a lawsuit to ensure that their rights and interests are protected. However, litigation is expensive and divisive.

A better idea might be to leave the house and a portion of the liquid estate to the surviving spouse, while leaving the rest of the estate to the children. The goal is to prevent tension between family members over access and control of assets.

An estate plan for a blended family requires effective communication, thorough planning and a delicate balance to protect the interests of all parties. It’s not easy. An experienced estate planning attorney can help you understand how wealth is distributed in blended families to ensure that it remains effective over time. The result of a blended family remaining a family after one of the spouses has passed can be more of a legacy than wealth. If you would like to learn more about planning for blended families, please visit our previous posts.

Reference: Think Advisor (Aug. 11, 2025) “What Wealthy Families Can Learn From a Rock Star’s Estate”

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Choosing the Right Estate Planning Attorney in Texas: Questions to Ask Before You Hire

September 1, 2025

When it comes to estate planning, choosing the right attorney can make all the difference. Your estate plan isn’t just about documents—it’s about protecting your family, your assets, and your future. With so many estate planning attorneys in Texas, how do you choose the right estate planning attorney for your needs? This article covers the questions to ask, tips for selecting a qualified professional, and how the right estate planning attorney can give you peace of mind for years to come.

Outline

What Does an Estate Planning Attorney Do?
Why Is It Important to Hire an Attorney in Texas for Estate Planning?
What Should You Ask an Estate Planning Attorney Before Hiring?
What Documents Should a Comprehensive Estate Plan Include?
What’s the Difference Between a Will and a Trust?
How Can Estate Planning Help You Avoid Probate?
Why Experience in Estate Law Matters
How Do You Know If the Attorney Is a Good Fit?
How Much Do Estate Planning Attorneys Typically Charge?
When Should You Start Estate Planning?

What Does an Estate Planning Attorney Do?

An estate planning attorney helps individuals and families draft legal documents to manage their estate during life and after death. These documents include wills, trusts, powers of attorney, and other tools used to distribute assets, reduce estate taxes, and plan for incapacity.

Beyond simply filling out paperwork, a planning attorney brings legal knowledge and experience in estate law to ensure everything is valid under Texas law. The attorney you select should also be able to explain how different estate planning tools work and customize a strategy to suit your situation.

Why Is It Important to Hire an Attorney in Texas for Estate Planning?

Each state has unique laws around estate planning and probate. Working with an attorney in Texas ensures that your documents are compliant with current Texas laws. For example, how a revocable living trust functions or how witnesses must sign a will can vary by state.

A local estate planning lawyer also understands the nuances of Texas estate procedures, including trust administration and the probate process. This local insight is essential for protecting your estate and ensuring your estate plan functions as intended when your family needs it most.

What Should You Ask an Estate Planning Attorney Before Hiring?

One of the best things you can do during a consultation is to come prepared with the right questions to ask. Some smart questions to ask an estate planning attorney include:

How long have you been practicing estate planning?
Do you focus only on estate law, or do you handle other areas like business law?
Can you help with both wills and trusts?
What’s your approach to tax planning and minimizing estate exposure?

Make sure you ask about their communication style, how they charge (whether hourly or flat fee), and what ongoing support they provide. The answers will help you choose someone you feel confident working with.

What Documents Should a Comprehensive Estate Plan Include?

A strong estate plan usually includes a will, a revocable living trust (if appropriate), a power of attorney, and advance healthcare directives. Depending on your situation, your attorney may also suggest other legal documents, such as a HIPAA release or guardianship designations.

Working with an experienced estate planning attorney ensures that all documents are properly drafted and tailored to your specific goals. This helps prevent confusion, delays, or probate disputes down the road.

What’s the Difference Between a Will and a Trust?

A will outlines how your assets should be distributed after death and appoints a guardian if you have minor children. It also must go through probate. A trust, on the other hand, allows your assets to pass outside of probate, often saving time and money.

Your estate planning attorney can explain whether a revocable living trust makes sense for your estate or if a simple will meets your needs. Understanding the benefits of each helps you make informed decisions.

How Can Estate Planning Help You Avoid Probate?

One of the biggest benefits of estate planning is the ability to avoid probate. Assets held in a trust, those with named beneficiaries (like life insurance or retirement accounts), or jointly owned property can pass directly to heirs without going through the probate process.

Avoiding probate can reduce costs, shorten delays, and give your family peace of mind. A good attorney will identify which assets may pass outside of probate and build a plan that aligns with your goals.

Why Experience in Estate Law Matters

Choosing an attorney who specializes in estate planning—rather than a general lawyer—ensures you’re working with someone who understands all the details of estate law. These include everything from Texas estate planning regulations to federal tax planning strategies.

Look for Texas estate planning lawyers who have handled similar cases, particularly if your situation involves blended families, large estates, or special trust arrangements. Their experience can save you from costly errors.

How Do You Know If the Attorney Is a Good Fit?

Your estate plan is personal, so it’s important to find the right attorney for your comfort level and communication style. During your consultation, pay attention to how they explain things. Do they listen well? Do they answer your questions clearly?

You want an attorney who doesn’t just draft documents—but one who truly understands your goals and treats your family’s legacy with care. When you feel heard and respected, you’ve likely found the right estate planning attorney.

How Much Do Estate Planning Attorneys Typically Charge?

Planning attorneys in Texas may charge by the hour or offer flat fee packages. For a comprehensive estate plan, costs typically range from $1,500 to $5,000, depending on the complexity of your needs.

Don’t hesitate to ask about pricing and what’s included. Some law firms bundle their services, while others charge separately for each legal document. Getting a clear understanding of costs up front is one tip that can prevent surprises later on.

When Should You Start Estate Planning?

The short answer: now. Estate planning can feel overwhelming, but delaying it can leave your family vulnerable. Life is unpredictable, and having a plan in place ensures your wishes are known, your children are protected, and your estate is handled properly.

Whether you’re starting from scratch or need to update your existing plan, working with an attorney ensures nothing gets missed. The sooner you start planning, the sooner you’ll gain peace of mind.

Summary: What to Remember

A strong estate plan protects your family, assets, and legacy.
Choose an estate planning attorney who understands Texas estate planning laws.
Prepare smart questions to ask during your consultation.
Your plan should include a will, trust, power of attorney, and healthcare directives.
Avoiding probate and minimizing taxes are major benefits of planning ahead.
Cost varies, but many attorneys offer flat fee options.
Start early to ensure your plan reflects your current wishes and life stage.

If you’re ready to secure your family’s future, now is the time to act. Contact us today to schedule a consultation with one of our trusted estate planning attorneys in Texas. Let us help you build a plan that brings clarity, confidence, and peace of mind.

Parents with Young Children need an Estate Plan

August 27, 2025

More than 60% of parents with minor children don’t have a will, according to several national surveys. This is a serious lapse, as parents need a will to appoint a person to raise their children if the parents die. The solution is not that difficult, says a recent article from Seattle’s Child, “Why every parent needs a will.” Parents with young children need to have an estate plan.

An estate plan includes several documents serving to protect children in case of their parents’ death. The guardian is named in the will. Trusts are used to provide funds for the child’s upbringing and to protect any inherited assets, so the child can’t access them until they are mature enough to make sound financial decisions.

If there is no will or other estate planning documents, there are default laws and procedures to determine who will become the guardian of the minor child and what will happen to the parent’s assets. The court could decide the child should be raised by a blood relative who lives many states away, taking the child from their home and community during a time of great stress.

If parents would rather the child remain in their school and community, having a will and naming a close family friend as their guardian could prevent the child from being uprooted from everyone and everything they know.

Many people make the mistake of thinking their spouse automatically inherits their estate. However, this depends upon the laws of your jurisdiction. In some states, the estate is divided between the spouse and the children. If the children are minors, they cannot legally inherit property. Therefore, their portion of the inheritance may be controlled by an administrator appointed by the court. If this occurs, the surviving spouse will receive a smaller inheritance, which may make it financially impossible to stay in the family home. Placing the surviving spouse in a position where they must request funds from a court-appointed administrator is not a pleasant legacy to leave.

If there is no will, the court divides assets according to the law of intestacy—the state’s laws. Children who inherit a full estate upon reaching the age of 18 are rarely ready to manage large amounts of money. Creating a trust for the benefit of a child, with a trustee who will manage the assets and provide directions on when to disburse funds and for what purposes, solves this problem.

When going through the estate planning process, you’ll also need to select someone to be your personal representative after you’ve died. The executor obtains death certificates, notifies Social Security and other government agencies, consolidates assets, pays bills and pays taxes for the estate and your final personal income taxes.

Parents with young children need to have an estate plan. Planning for what could happen in the future when your children are young is not as much fun as going on a family vacation or decorating a nursery. However, taking care of this will ensure that your beloved children are protected according to your wishes. This is a legacy of love. If you would like to learn more about planning for young parents, please visit our previous posts.

Reference: Seattle’s Child (July 25, 2025) “Why every parent needs a will”

Gifting Strategies for Grandchildren

August 25, 2025

Many grandparents want to help support their grandchildren’s future, whether by funding education, building financial security, or encouraging good saving habits. There are several gifting strategies for grandchildren. One way to do this is through custodial accounts created under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These accounts enable adults to transfer assets to a child, while maintaining oversight until the child reaches the age of majority.

However, there are important considerations to keep in mind when using these tools. This is especially true when the gift size, future control, or tax implications are significant.

What are UGMA and UTMA Accounts?

UGMA and UTMA accounts are custodial investment accounts that allow minors to own securities or other assets. A designated adult (the custodian) manages the account until the child reaches the age of majority, at age 18 or 21.

The custodian has a fiduciary responsibility to act in the child’s best interest and must use the funds for the child’s benefit. Once the child comes of age, they gain complete control of the assets and can use the money however they choose.

The key difference between the two account types lies in what assets they can hold. UGMA accounts are limited to financial instruments, such as stocks and bonds. UTMA accounts can also include real estate, patents, or fine art.

Tax and Financial Aid Implications

While UGMA and UTMA accounts offer flexibility and simplicity, they carry some tax and financial aid consequences. Contributions are irrevocable and considered completed gifts, meaning the money legally belongs to the child. This limits the donor’s control and introduces risks if the child misspends the funds in adulthood.

For tax purposes, the account’s income may be taxed at the child’s rate under the “kiddie tax” rules. If the income exceeds a certain threshold, part of it may be taxed at the parents’ marginal rate. Fortunately, the first portion of income is often tax-free or taxed at a lower rate, making these accounts potentially efficient for moderate investments.

On college financial aid applications, assets in a custodial account count more heavily against eligibility compared to funds held in a parent’s name. Families with financial aid goals may wish to consider 529 plans instead.

When Accounts Make Sense

UGMA and UTMA accounts can be effective for smaller gifts, particularly when the intention is to provide a child with early access to funds for school, travel, or a first car. They’re also relatively easy to set up and don’t require trust documentation.

However, for larger gifts or when long-term control is desired, a trust or 529 plan may be a more suitable option. These options allow for setting rules, limiting distributions and minimizing the impact of financial aid. Whether you use the accounts above, or other gifting strategies for grandchildren, make sure you work closely with an estate planning attorney. If you would like to learn more about gifting strategies in your estate planning, please visit our previous posts.

Reference: Fidelity Investments (Jan. 16, 2025) “Must-know facts about UGMA/UTMA custodial accounts”

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Options when Inheriting a House

August 21, 2025

When someone inherits a home, the emotional connection often competes with practical concerns. You may want to preserve the memory, move in, rent it, or sell it. However, each path comes with financial, legal and tax implications. Understanding your options when inheriting a house can help you make informed decisions that align with both your personal goals and long-term stability.

Assess the Property’s Condition and Financial Obligations

Start by evaluating the home’s physical state. A property that needs extensive repairs or updates may not be worth keeping if you can’t afford the upkeep. Get an inspection if necessary to understand the costs involved.

Next, confirm whether there’s a mortgage or any liens. Just because you inherited the house doesn’t mean it’s fully paid off. If the mortgage is assumable, you may be able to assume it. If not, the balance will need to be paid off, refinanced, or covered through the estate.

You should also factor in property taxes, insurance, maintenance costs and potential homeowners association fees. These factors will impact the long-term affordability of maintaining the house.

Consider Your Use and Intentions

Decide whether you want to live in the home, rent it out, or sell it. Each choice has different tax implications:

Selling the home may trigger capital gains tax. However, heirs typically benefit from a step-up in basis, meaning the home’s value resets to fair market value at the date of death. That often reduces or eliminates capital gains.
Renting the home can generate income. However, it turns you into a landlord with all the responsibilities that entails. You’ll need to address local rental laws and potential property management needs.
Living in the home could be beneficial if it aligns with your lifestyle and financial situation. However, you’ll need to ensure that it is properly titled and insured in your name.

Address Estate and Title Matters

The home must be legally transferred to you before you can make changes. This typically happens through the probate process, unless the home was held in a trust or jointly titled with rights of survivorship.

An estate or probate attorney can help navigate these legal processes, especially if other heirs are involved or if disputes arise. Once the title is in your name, you can take formal ownership actions, such as refinancing or selling.

Don’t Delay Financial Planning for the Property

Remember, you have options when inheriting a house. Inheriting a home may significantly affect your estate and tax planning. You should update your will, consider creating a trust and review your insurance coverage. If you plan to keep the home in the long term, it should be integrated into your personal financial strategy.

Some heirs feel overwhelmed by the burden of inherited property. Selling may feel like a loss. However, it may be the wisest choice depending on your goals and the home’s condition. If you would like to learn more about how to manage inherited property, please visit our previous posts.

Reference: SmartAsset (February 17, 2025) “What to Do When You Inherit a House”

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Common Trust Mistakes to Avoid

August 19, 2025

A trust helps manage your assets during your lifetime and after death. It allows you to avoid probate, plan for incapacity and maintain privacy. However, creating a trust is only the beginning. Many people fail to maintain or properly structure their trusts, which can jeopardize their intended benefits. There are some common trust mistakes to avoid.

Failing to Fund the Trust

The most common and critical mistake is failing to transfer assets into the trust. A trust without assets—sometimes called an “empty trust”—offers no legal control. If your real estate, accounts, or investments aren’t retitled in the trust’s name, they remain subject to probate.

This oversight defeats one of the primary purposes of a trust. Ensuring that assets are properly titled or assigned to the trust is essential. Work with an attorney to confirm that your trust is fully funded, especially if your assets change over time.

Choosing the Wrong Trustee

The trustee plays a vital role in managing and distributing the trust’s assets. Selecting someone based on family ties rather than capability can lead to conflicts or mismanagement. A trustee should be financially literate, organized and impartial.

Some people name co-trustees, thinking it will balance power. However, this can complicate decision-making. If there’s any concern about fairness, consider naming a professional fiduciary or trust company that is more familiar with managing assets instead.

Not Updating the Trust

Major life events—such as marriage, divorce, births and deaths—require updates to your trust. Yet many people forget to review their documents for years. This can result in outdated beneficiaries, removed heirs, or outdated guardianship preferences.

Changes in tax or state law may impact how your trust operates. Regular legal reviews help ensure that your trust accurately reflects your current wishes and complies with current laws and regulations.

Overlooking Tax Implications

Trusts can offer tax benefits. However, they can also trigger tax obligations if not properly structured and administered. For example, irrevocable trusts may have different tax rules than revocable ones. Failing to coordinate your trust with your overall tax and estate plan may reduce your assets and increase liability for your heirs.

These common trust mistakes to avoid happen every day, because people do not take the time to create them properly. By working with a financial advisor and estate planning attorney, you can optimize your trust in a tax-efficient manner. If you would like to learn more about trusts, please visit our previous posts.

Reference: Investopedia (March 04, 2025) “Lessons From the Ultra-Wealthy: Avoid These Common Trust Mistakes”

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Common Reasons to Avoid Probate Court

August 7, 2025

Probate is the legal process of distributing a person’s assets after death. While it serves an important function, it often comes with drawbacks: delays, expenses and public records. For families seeking to settle affairs smoothly and maintain privacy, avoiding probate through effective planning can be a more efficient approach. There are some common reasons to avoid probate court.

1. Probate Often Involves Significant Delays

Probate cases can take months or even years to resolve. Court schedules, required notices to creditors and potential disputes all slow the timeline. During this period, heirs may not be able to access key assets, which can lead to financial strain, mainly when a surviving spouse or dependent relies on those funds.

2. The Process Can Be Expensive

Court filing fees, executor compensation, attorney fees, appraisals and other administrative costs reduce the value of the estate. These expenses are often paid out of the estate’s assets, leaving less for beneficiaries. In complex or contested estates, costs can escalate rapidly and frequently exceed initial expectations.

3. Public Records Compromise Privacy

Once a will is entered into probate, it becomes a public record. Anyone can review the details of the estate, including its contents, beneficiaries and asset distribution. For families that value discretion, avoiding probate helps keep financial and personal matters private and confidential.

4. Disputes are More Likely

Probate offers an open door for challenges. Heirs, creditors, or estranged relatives may contest the will, resulting in prolonged legal battles and increased stress. With proper estate planning—such as creating trusts or utilizing beneficiary designations—assets can be transferred more directly, thereby reducing the likelihood of conflict.

5. There are Better Alternatives to Probate

Revocable living trusts, payable-on-death accounts and joint ownership arrangements can bypass probate altogether. These strategies enable assets to be passed to beneficiaries quickly and efficiently without requiring court oversight. While not suitable for every asset or family, they offer powerful tools when used correctly in a broader estate plan.

These are just five of the most common reasons to avoid probate court. An estate planning attorney can help you weigh these options and structure your affairs to serve your family’s needs best, during your lifetime and beyond. If you would like to learn more about probate, please visit our many previous posts on the subject.

Reference: Charles Schwab (July 14, 2023) “The Benefits of Avoiding Probate”

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Is Your Trust Vulnerable To Lawsuits?

July 22, 2025

Many individuals turn to trusts to safeguard their assets, streamline the inheritance process and maintain privacy. Is your trust vulnerable to lawsuits? While a well-structured trust can offer significant protection, it is not automatically immune to lawsuits. The type of trust, its funding, and management all play a role in determining its legal vulnerability.

Revocable vs. Irrevocable Trusts

The first thing to understand is the difference between revocable and irrevocable trusts. A revocable trust—also called a living trust—can be changed or dissolved by the grantor at any time. Because the grantor retains control, the trust assets are still considered part of their estate. This means they can be subject to lawsuits, creditor claims and estate taxes.

In contrast, an irrevocable trust removes the assets from the grantor’s control. Once transferred, the assets belong to the trust itself. This separation offers greater protection from creditors and legal judgments but comes at the cost of flexibility. You cannot modify or revoke the trust without legal hurdles or court intervention.

If asset protection is a primary goal, an irrevocable trust is typically the better choice.

When can Trust Be Challenged?

Even a carefully drafted trust can face legal challenges under certain circumstances. Common reasons include:

Claims of undue influence or diminished capacity: Heirs may argue the grantor was coerced or not mentally competent when creating or amending the trust.
Allegations of mismanagement: If a trustee fails in their fiduciary duty, beneficiaries can bring legal action against them.
Disputes over asset distribution: Unclear or inconsistent terms can lead to family conflict and potential litigation.

To minimize these risks, it is essential to have clear language, thorough documentation, and a competent trustee. Some individuals choose corporate trustees to reduce the risk of personal bias or mismanagement.

Are Trust Assets Safe from Personal Lawsuits?

For revocable trusts, the answer is generally no. Because the grantor retains control of the assets, they remain vulnerable to personal lawsuits, such as claims arising from car accidents or business disputes. In the case of irrevocable trusts, the assets are better protected, provided the trust was not established with the intent to defraud creditors or avoid existing obligations.

Timing also matters. Courts may scrutinize asset transfers into a trust if they occur shortly before a legal claim arises. This is especially true in bankruptcy or divorce proceedings.

Additional Strategies for Protection

For high-risk individuals, such as business owners, physicians, or landlords, advanced asset protection planning is often necessary. This might include:

Domestic or offshore asset protection trusts
Limited liability companies (LLCs) are used in conjunction with trusts
Insurance policies to cover legal risks

A trust is just one piece of the puzzle. Comprehensive protection often involves combining legal, financial and insurance strategies tailored to your unique situation. Contact an estate planning attorney today to see if your trust is vulnerable to lawsuits, ensuring that your wishes are fulfilled without the burden of a legal battles. If you would like to learn more about different types of trusts, please visit our previous posts.

Reference: SmartAsset (Feb. 21, 2025) “Estate Planning: Can You Sue a Trust?”

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Using Life Insurance to Fund a Trust

July 14, 2025

Using life insurance to fund a trust is a strategy that combines estate planning with asset protection. It can provide liquidity for estate taxes, offer support to beneficiaries and provide control over how and when assets are distributed. When structured properly, this approach helps preserve wealth, while minimizing tax exposure and family conflict.

Why Use a Trust to Hold a Life Insurance Policy?

When a person owns a life insurance policy in their name, the death benefit becomes part of their estate. This can increase the taxable estate and delay access to funds during the probate process. By contrast, placing the policy in an irrevocable life insurance trust (ILIT) removes it from the taxable estate.

In this arrangement, the trust serves as both the policy owner and beneficiary. When the insured dies, the death benefit goes directly into the trust. The trustee can then distribute funds according to instructions in the trust document, whether for paying estate taxes, supporting minor children, or funding a business transition.

Advantages of Using an Irrevocable Life Insurance Trust (ILIT)

An ILIT offers greater control over how the life insurance proceeds are used. The trustee can manage the funds over time, rather than issuing a lump sum payment to the beneficiaries. This is especially useful when the beneficiaries are minors, have disabilities, or are at risk of financial mismanagement.

The proceeds also avoid probate and are generally protected from creditors, depending on the jurisdiction in which they are held. The trust can also contain rules for triggering distributions – for example, funding education, medical expenses, or home purchases – without handing over complete control.

Points to Consider Before Creating a Trust

An ILIT must be irrevocable, meaning you cannot make changes once the trust is funded. It must also be created before applying for the life insurance policy, or the IRS may still consider the policy part of your estate.

Annual premiums paid into the trust may be considered gifts to the trust’s beneficiaries. To avoid gift tax, these payments should be structured carefully, often using what’s known as “Crummey notices” to qualify for the annual gift tax exclusion.

Because of these technical requirements, an experienced estate planning attorney should be involved from the start. Using life insurance to fund a trust can be a wise choice. Life insurance trusts can be powerful tools, but only if set up and managed correctly.

Key Takeaways

Life insurance trusts protect estate value: Placing a policy in a trust keeps the death benefit out of the taxable estate and out of probate.
ILITs offer control and protection: Trustees can distribute proceeds according to long-term goals rather than in a lump sum.
Setup must follow IRS guidelines: To avoid tax consequences, the trust must be properly structured from the beginning.
Gifting rules apply to premium payments: Careful planning ensures that premium payments qualify under gift tax exclusions.
Legal advice is essential: Trust and tax laws are complex, and mistakes can undermine the benefits of the trust.

If you would like to learn more about the role of life insurance in estate planning, please visit our previous posts.

Reference: J.P. Morgan (Nov 27, 2024) “When Does It Make Sense for a Trust to Own Your Life Insurance Policy?”

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Category: Assets