Estate Planning · Haute Lawyer Network
Can a Trust Reduce Estate Taxes?
Last reviewed: June 2026
A revocable living trust does not reduce estate taxes — because you retain control of the assets, they remain in your taxable estate. But certain irrevocable trusts are specifically designed to remove assets from your taxable estate, reducing or eliminating the federal estate tax that would otherwise apply.
The federal estate tax applies to estates above $13.61 million per person in 2026. For estates above this threshold, the tax rate is 40% on the excess. Strategic trust planning can dramatically reduce this liability.
Irrevocable Life Insurance Trust (ILIT)
Life insurance death benefits are included in the taxable estate if the deceased owned the policy. An ILIT owns the policy instead — keeping the death benefit out of the taxable estate while still providing proceeds to beneficiaries. For large estates, this can remove millions from the taxable estate.
Spousal Lifetime Access Trust (SLAT)
A SLAT is an irrevocable trust for the benefit of a spouse. The grantor uses their lifetime exemption to transfer assets to the trust — removing them from the taxable estate — while the spouse can still benefit from the assets during their lifetime. This allows couples to shelter assets now before potential exemption reductions.
Grantor Retained Annuity Trust (GRAT)
The grantor transfers assets to the trust and receives an annuity payment for a fixed term. If the assets grow faster than the IRS hurdle rate (the Section 7520 rate), the excess growth passes to beneficiaries estate-tax free. GRATs are particularly effective for assets expected to appreciate significantly.
Charitable Remainder Trust (CRT)
Assets transferred to a CRT provide the grantor with an income stream and a partial charitable deduction, with the remainder passing to charity at the end of the trust term. Charitable bequests are fully deductible from the taxable estate.
Qualified Personal Residence Trust (QPRT)
Transfers a home out of the estate at a reduced gift tax value while the grantor retains the right to live there for a specified term.
Dynasty Trust
Designed to hold assets across multiple generations, keeping them out of each generation's taxable estate through careful use of the generation-skipping transfer tax exemption.
Frequently Asked Questions
Does putting my house in a revocable trust reduce estate taxes?
No. A revocable trust avoids probate but does not reduce estate taxes. The home remains in your taxable estate because you retain control through the revocable trust.
What is the estate tax exemption in 2026?
$13.61 million per individual — $27.22 million for married couples using portability. The current elevated exemption is scheduled to sunset at the end of 2025 under current law, potentially dropping to approximately $7 million per person. This creates urgency to act before any reduction takes effect.
Can I create a trust now to beat the exemption sunset?
Yes. Using your current exemption through an irrevocable trust now — before any reduction — locks in the transfer at today's higher exemption. Transfers made before a sunset are generally grandfathered even if the exemption is later reduced.
What is the annual gift tax exclusion?
In 2026, you can give up to $18,000 per recipient per year without gift tax or using your lifetime exemption. Combining annual gifting with trust strategies allows substantial wealth transfer over time.
Do I need an estate planning attorney for estate tax planning?
Yes. Estate tax planning involves sophisticated trust structures, gift tax reporting, and coordination with your financial advisor and accountant. The cost of professional planning is typically far less than the estate tax savings it produces.
Related Questions
Are you an Estate Planning attorney?
Join Haute Lawyer Network and have your profile featured alongside these answers.
Apply for Membership →This information is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship.