"Estate plans encompass more than just wills stating who gets what after you die," says Catherine Neijstrom, Fidelity Investments vice president and financial and trust planning lead. "Many people establish trusts as will substitutes and also to provide for management of their assets, if needed, while they're alive. Other reasons people may establish trusts include creditor protection for beneficiaries, minimizing estate taxes, charitable giving, and providing for a disabled beneficiary."
A trust is a legal arrangement for the transfer of property by a grantor to a trustee for the benefit of one or more beneficiaries. There are many types of trusts to consider, each designed to help achieve a specific goal. An estate planning professional can help you determine which type (or types) of trusts are appropriate for you. However, an understanding of the estate planning goals that a trust may help you achieve is a good starting point.
Take control with a trust
With recent legislation continuing the high federal estate tax exemption, the purpose of a trust today may be more about retaining control over assets during the grantor’s life and upon the grantor’s death than creating an estate tax saving plan. If you were to die this year (2026), for example, your estate would avoid federal estate tax exposure as long as it is valued at less than $15 million. In 2026, a married couple can avoid federal estate tax exposure with a combined estate up to $30 million. Given those parameters, relatively few people in the United States will be exposed to federal estate tax at death for the foreseeable future.
"It's all about planning. You want to make sure you have the right pieces in place and that your plan truly matches your wishes, so your family isn't scrambling if something happens to you," says Neijstrom.
Key reasons for considering a trust:
Control. A trust can control who will receive distributions, as well as when those will occur and on what terms. This can be especially important for surviving spouses and families with children from multiple marriages.
Protection. A properly constructed trust can protect your legacy from your beneficiaries' creditors, including divorcing spouses—or from your beneficiaries' own poor choices.
Privacy and probate savings. Depending on where you live or where your property is located, the process where the state settles your affairs, called probate, can be expensive and time-consuming, and all the records will be public. In contrast, if you have a trust that you control, called a revocable living trust, the trust assets will generally avoid probate if the trust is properly funded during your life.
State estate and inheritance taxes. More than a dozen US states and the District of Columbia also impose some form of estate or inheritance tax with limits much lower than the federal $15 million amount, according to the Tax Foundation. Tax planning with trusts may be more estate and inheritance tax-oriented for individuals located in these areas.
Incapacity planning. Trusts can also provide instruction for how to handle trust assets during your life if you become too ill to manage your own affairs. However, only assets transferred to a trust during your lifetime will be subject to the administrative and control features a trust offers.
Charitable giving. You can set up a tax-efficient long-range plan to donate your assets the way that you want through charitable trusts.
Life insurance ownership. Generally, without trust planning, the death benefit payout from a life insurance policy would be considered part of the insured's estate for the purposes of determining estate tax exposure. However, this is not the case if the policy is purchased by an independent trustee and held in an irrevocable life insurance trust (ILIT) that is created and funded during the grantor's lifetime, with certain limitations (please consult your estate planning attorney).1
Special needs planning. A family member may help a loved one with special needs while alive and set up a special needs trust to continue to provide financial assistance after the family member's death. Special needs trust planning is complicated, so if considering this route, it's important to consult with an attorney specializing in this area.
Large retirement account balances. The SECURE Act changed the rules for inherited IRAs by eliminating for many beneficiaries what is known as the "stretch IRA," a way to pass on a retirement account allowing a beneficiary to take distributions from the account based on their own life expectancy.2 If you think your beneficiaries will not be able to handle a large windfall of cash, especially within the 10-year time frame in which IRA assets will need to be distributed to many beneficiaries, you may want to leave IRA assets to a trust so the trustee can designate when those funds are distributed to the beneficiary, according to your wishes. However, leaving IRA assets to a trust is generally less tax-efficient than leaving assets outright to your beneficiaries because of how income retained in a trust is taxed. Also, leaving retirement benefits to a trust requires working with an estate planning attorney experienced in drafting trusts for retirement benefits to make sure tax ramifications are fully considered.
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Read Viewpoints on Fidelity.com: SECURE Act rewrites the rules on stretch IRAs
Picking the right trust for you
The type of trust you consider creating—and particularly the language of the trust—will depend on your individual circumstances and goals. Working with your tax advisor and an estate planning attorney, you can decide if a revocable trust, irrevocable trust, or both, are appropriate.
A trust that is revocable can be altered or amended, and/or generally have assets pulled out of it, during the grantor's3 lifetime. After the grantor's death, the trust becomes irrevocable and, if properly funded during the grantor's life, can act as a will substitute, enabling the trustee to privately and efficiently settle the grantor's estate without going through the probate process. It is critical that assets be retitled into the name of the revocable trust during the grantor's life in order to avoid probate.
With an irrevocable trust, in almost all circumstances, the grantor cannot amend the trust once it has been established, nor can the grantor regain control of the money or assets used to fund the trust. Typically, the grantor gifts assets into the trust, and the trustee administers the trust for the trust beneficiaries based on the terms specified in the trust document. A key planning benefit of irrevocable trusts is that they allow a grantor to remove appreciation on trust assets from their estate—and avoid a potential estate tax with respect to that appreciation.
Remember that life happens—so review your needs as your circumstances change or evolve. As a general rule, it's a good idea to review your estate planning needs and existing plan every 3 to 5 years. In addition, review your plan when major life events occur such as marriage, birth of a child, divorce, receipt of an inheritance, or death of a beneficiary.