Making Your Mark: Financial Tools and Techniques for Securing Your Legacy

Morgan Stanley at Work 04/24/23
Making Your Mark

You've worked hard to build a comfortable life for yourself and your family, and you want to create a meaningful legacy that lives on for generations. An effective estate plan can help you support the people and organizations you care about most, long after you are gone. As you map out a path to achieving your legacy goals, you may benefit from the effective use of trusts, gifting strategies and other wealth planning tools and techniques.

Exploring Trusts as Part of Your Estate Plan

Trusts can be used for many reasons, such as the avoidance of probate and the minimization of estate taxes. There are a variety of trust structures, and the type of trust you choose to incorporate into your estate plan will depend on your goals, circumstances and assets. If you are married, there are five main types of trusts to be aware of:

  • Revocable Living Trust: Typically used to avoid probate, this flexible structure allows the owner of the trust to make or amend terms or provisions, change beneficiaries, determine the investment of trust assets or terminate the trust at any time.
  • Power of Appointment Trust: This type of trust pays income to the surviving spouse at least annually, and the surviving spouse must have the right to redirect trust assets at his or her subsequent death. No one other than the surviving spouse may be a beneficiary during his or her lifetime, and the trust will be included in the surviving spouse’s estate.
  • Qualified Terminable Interest Property (QTIP) Trust: Under this trust structure, net income is paid to the surviving spouse annually, but at the surviving spouse’s death, assets are generally distributed according to the stated wishes of the first spouse to die. The surviving spouse can be given a limited power to redirect trust assets at his or her death. No one other than the surviving spouse may be a beneficiary during his or her lifetime, and the trust will be included in the surviving spouse’s estate.
  • Qualified Disclaimer Trust: This type of trust can have mandatory or discretionary distributions of income and principal and can have beneficiaries other than the surviving spouse during the surviving spouse’s lifetime. This type of trust is not included in the surviving spouse’s estate and therefore the assets held in the trust, including any appreciation that occurs between the first spouse’s death and the death of the surviving spouse, will pass federal estate tax-free to the remainder beneficiaries.
  • Credit Shelter Trust: Also known as a "B trust" or "Exemption Trust," this trust structure can have mandatory or discretionary distributions of income and principal and can have beneficiaries other than the surviving spouse during the surviving spouse’s lifetime. This type of trust is not included in the surviving spouse’s estate and therefore the assets held in the trust, including any appreciation that occurs between the first spouse’s death and the death of the surviving spouse, will pass federal estate tax-free to the remainder beneficiaries.

Other types of trusts that may be considered as part of an estate plan include:

  • Charitable Remainder Trusts: Under this structure, the donor or other non-charitable beneficiaries receive annual payments from the trust for their lifetimes or for a term of years (not to exceed 20), after which any remaining trust assets pass to one or more qualified charities. This type of trust may have significant federal income and/or transfer tax benefits, particularly when funded with highly appreciated assets.
  • Irrevocable Life Insurance Trust: This type of trust is used to hold life insurance policies; the proceeds are not included in the estate of the grantor and the terms of the insurance trust control how the proceeds are to be used by or for the beneficiaries.
  • Special Needs Trust: Established for the benefit of someone who is receiving governmental benefits and will need some level of lifelong care; the use of a special needs trust will permit the beneficiary to remain eligible for public assistance.

Taking Advantage of Federal Gift and Estate Tax Exemptions

For 2023 the lifetime federal estate and gift tax exemption amount is $12.92 million. For 2023, the annual gift exclusion amount is $17,000 for individuals and $34,000 for couples electing to split gifts. As part of your estate plan, these exemptions can help minimize the amount of your estate that is subject to the 40% federal estate tax.1

However, tax laws are complex and subject to change. Working with a trusted team of advisors—including an accountant, estate planning attorney and Financial Advisor—can help you identify and implement lifetime wealth transfer strategies that help you preserve your hard-earned wealth and enable you to create the legacy you envision.

  1. Internal Revenue Service " What's New - Estate and Gift Tax " Accessed March 31, 2023.

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