ESTATE PLANNING
hanced asset protection, and greater flexibility for long-term wealth management, taking actions in the following areas:
• Some states have abolished the common law rule against perpetuities: Traditional law required trusts to terminate after a certain time frame( the classic formula was“ lives in being plus 21 years.”) But then“ dynasty trusts” emerged in states like South Dakota and Alaska. These vehicles allowed wealth to be passed down through generations in perpetuity without triggering estate generation-skipping transfer taxes.
• Many states have enacted trust decanting statutes: This began with New York in 1992. When decanting is permitted, a trustee can move assets from an irrevocable trust to a new trust with different, more favorable terms. This allows trusts to adapt to changes in law or family circumstances.
• Several states have authorized asset protection trusts: Such“ self-settled” trusts allow people to shield their assets from future creditors, while the creators themselves are allowed to remain beneficiaries, a concept traditionally unavailable under Anglo-American trust principles.
• They have adopted or tweaked the Uniform Trust Code: This model law( developed in 2000 by the Uniform Law Commission) was intended to harmonize state laws. But in practice it has tended to highlight the differences in those laws, as various states customize the UTC to suit their own business-friendly agendas— including their hopes to lure trust business. Studies indicate that a state’ s decision to abolish the rule against perpetuities could increase its trust assets by billions. So the competition has significantly influenced where wealth is currently housed— and where it will be in the future.
2. Breaking Up Is Hard To Do
Divorce statistics are sobering to most people, but they are downright terrifying to estate planners, who usually fashion estate plans when couples are still together under the assumption that the marriage will last“ until death do us part.” Yet 43 % of first marriages end in divorce, as do 57 % of second marriages, and 67 % of third ones. The impact of a divorce on an estate plan can range from messy to an outright disaster.
Consider the effect divorces can have on spousal lifetime access trusts( SLATs). These popular vehicles allow couples to use up the full( doubled) unified gift and estate tax credit available before 2026( though this was made permanent by the new law anyway). SLATs’ advantage is that they permanently transfer large quantities of assets from one spouse to the other— but that creates a litany of problems if the couple divorces. In fact, this problem was the subject of one full presentation at Heckerling this year( a session whose title asked the question: Are SLATs a third wheel or a third rail?)
Bruce Stone, an attorney at Goldman Felcoski & Stone, said in another presentation that estate planning almost necessarily requires a discussion of possible divorce issues.
3. Estate Planning Has Become Income Tax Planning
Traditional estate planning has been turned on its head by the One Big Beautiful Bill. Not only have larger unified gift and estate tax credits been preserved, but Congress also kept the step-up in tax basis to fair market value for assets passing to heirs, pursuant to Internal Revenue Code Section 1014( b). So while the previous goal of wealth creators was to move assets out of their taxable estates, their new aim may be to keep some or all of the assets in the estate( at least up to $ 30 million). Families might even want to move assets upstream rather than downstream: Healthy children, for instance, might want to gift highly appreciated assets to their parents, rather than the other way around, so the assets can be stepped up to full fair market value when the parent dies, then be passed back to the kids( or maybe to grandchildren), thus making income tax liabilities magically disappear.
In short, running assets through an estate rather than around it is the official new hot idea. Consider how a spousal lifetime access trust might be drafted so that it can also be used with a qualified terminable interest property trust election( a“ QTIPable SLAT”) so that the donor
Trust law, once upon a time, was stodgy and conservative. The jurisprudence varied moderately from state to state, but it was often based on fundamentally similar concepts and unifying theories. Well, times have changed.
spouse can“ wait and see” whether to use the donor spouse’ s lifetime gift tax exemption or to qualify the transfer for the estate tax marital deduction. Alternatively, a SLAT might grant the beneficiary spouse a general power of appointment over some or all of the trust assets and thus intentionally include those assets in the beneficiary spouse’ s estate on death. In short, there are lots of new, creative ideas brewing on how best to take advantage of Section 1014( b) step-ups within estate plans.
4. State Level Estate Planning While federal estate taxation now applies solely to the very wealthy, there remains a weird pastiche of state regimes handling estate taxes. In 2001, all 50 states and the District of Columbia had an estate tax of some sort, but most of them have since abandoned such taxation entirely. Only 12 states still impose an estate tax on death, while four others impose an inheritance tax( Maryland has both). Washington state, bucking the trend, just increased its estate tax from 20 % to 35 % on estates over $ 9 million, giving it the highest rate in the country. Taxachusetts, my home state, which has an estate tax that applies to estates over $ 2 million and escalates at its height to 16 %, now also applies a 4 % sur-
48 | FINANCIAL ADVISOR MAGAZINE | MARCH / APRIL 2026 WWW. FA-MAG. COM