Do I Need A Trust? (updated for 2026)

Posted On October 3, 2023 By Scott Stratton, CFP(R), CFA In Estate Planning /

Do I Need a Trust?

For many families, the honest answer is:

No — you probably don’t.

But for grandparents and families with several million dollars or more, a properly designed trust can provide long-term protection, structure, and multi-generational oversight.

The key question isn’t “Should I avoid probate?”

The real question is:

“Do I want my assets protected and professionally managed after I’m gone — or distributed outright with no guardrails?”

If You Have Under $1 Million and a Simple Situation

If:

Your estate is modest
Your beneficiaries are financially responsible adults
Most of your assets are IRAs or retirement accounts
You are simply passing assets to children

A trust may not be necessary.

Probate Is Often Overstated

Probate is frequently portrayed as disastrous. In many states, it is:

Straightforward
Reasonably paced
Not especially expensive

For smaller, uncomplicated estates, a will plus proper beneficiary designations often accomplishes the goal efficiently.

If you are primarily concerned with taxes rather than control or protection, broader retirement tax planning may be more impactful than creating a trust.

If Most of Your Wealth Is in IRAs

If most of your wealth is in traditional IRAs or retirement plans:

Those accounts already transfer by beneficiary designation.
Naming a trust can complicate distribution rules.
Trust tax brackets are highly compressed.

Unless there is a strong protection reason, routing retirement accounts through a trust can create unnecessary tax complexity.

You can read more about how retirement accounts are taxed in our article on Net Investment Income Tax (NIIT) and Medicare surtaxes, which often affect retirees differently than expected.

When a Trust May Make Sense

Trust planning becomes more appropriate when families have several million dollars or more and want to protect assets across generations.

The issue is not probate.

The issue is protection.

An outright inheritance exposes assets to:

Divorce settlements
Remarriage complications
Spendthrift behavior
Lawsuits and liability claims
Poor investment decisions
Special needs situations

Once assets are distributed outright, they belong fully to the beneficiary — and are vulnerable.

For example, if an adult child later remarries, inherited assets received outright may become entangled in a future divorce. We’ve written separately about the financial complexities of getting remarried later in life, and similar risks apply across generations.

A properly structured trust can:

Shield assets from creditors
Protect against claims in divorce
Prevent a new spouse from redirecting inherited wealth
Provide oversight for beneficiaries who struggle with money
Support special needs family members without jeopardizing benefits

For families with meaningful wealth, this protective structure often outweighs the added complexity.

What Is a Dynasty Trust?

A Dynasty Trust is designed to:

Last for multiple generations
Keep assets protected for children and grandchildren
Avoid repeated exposure to creditors and divorces
Maintain professional management long-term

Instead of leaving assets outright to children — who then control them completely — a Dynasty Trust keeps assets inside a protective structure for decades.

For families with several million dollars who expect wealth to last beyond one generation, this can be a powerful planning tool.

How Beneficiaries Receive Money: HEMS and Unitrust Standards

A common misconception is that trusts “lock up” money.

In reality, trusts define how and when beneficiaries receive funds.

Two common distribution approaches:

1. HEMS Standard

Trustees may distribute funds for:

Health
Education
Maintenance
Support

This gives flexibility while maintaining protection.

2. Unitrust Distribution

The trust distributes a fixed percentage (for example, 3–5%) of the trust’s value each year.

This creates:

Predictable income
Long-term sustainability
Ongoing asset protection

These standards balance access with discipline.

The Tax Reality of Trusts (2026)

Trusts are generally less favorable for income taxes than individuals.

In 2026:

Trusts reach the top 37% federal income tax bracket at $16,000 of taxable income (2026)
Trusts may also be subject to the Net Investment Income Tax (NIIT).
Trusts can owe state income taxes depending on structure and location.
Trusts pay tax on retained (undistributed) income.

This means:

You must have strong non-tax reasons to create a trust.

Tax savings alone are rarely the reason.

Protection, control, and continuity are.

For families focused primarily on minimizing lifetime taxes, coordinated retirement income planning and tax strategy often deliver more immediate value.

A Trustee Solution for Multi-Generational Planning

A trust requires a trustee to administer it.

A Registered Investment Advisor (RIA) cannot serve as trustee due to conflict-of-interest concerns.

However, we can serve as the investment advisor to a trust while working with an independent corporate trustee such as:

Charles Schwab Trust Company

Schwab Trust Company is based in Nevada.

Nevada trusts:

Do not pay Nevada state income tax
Offer strong asset protection statutes

(Although beneficiaries may still owe taxes on distributed income depending on their state of residence.)

This structure provides:

Independent fiduciary oversight
Long-term continuity
Professional administration for generations
Coordinated investment management

So, Do You Need a Trust?

You may benefit from trust planning if you:

✔ Have several million dollars or more
✔ Want assets protected from divorce or creditors
✔ Are concerned about remarriage risks
✔ Have a spendthrift or financially inexperienced heir
✔ Need structure for a special needs beneficiary
✔ Want professional oversight across generations

You may not need a trust if you:

✖ Have a simple estate under $1 million
✖ Have financially responsible adult heirs
✖ Have most wealth in retirement accounts
✖ Are primarily concerned about probate

Trusts are powerful tools — but they introduce complexity and stricter tax rules.

They should exist to solve meaningful problems, not to follow estate planning trends.

If you are a grandparent with several million dollars and want to explore whether a trust fits into your broader retirement and tax strategy, we can help you evaluate the tradeoffs clearly and objectively.

You can request an introductory conversation here:
👉 https://goodlifewealth.com/appointment/

These meetings are educational and focused on planning — including trustee structure, asset protection considerations, and long-term investment management — so you can decide what structure best supports your family.

What Is the Estate Tax? (2026 Update) — Exemptions, State Taxes & Planning

Posted On October 1, 2023 By Scott Stratton, CFP(R), CFA In Estate Planning /

Estate tax affects the transfer of wealth at death for large estates. Thanks to recent tax law changes, the federal estate tax exemption has been made permanent at historically high levels and indexed for inflation. Even so, state-level estate or inheritance taxes — with much lower exemptions — remain a relevant consideration for many retirees.

Understanding how the federal estate tax works — and how it interacts with state taxes and retirement planning — can help you make informed decisions about wealth transfer, gifting, and legacy planning.

Federal Estate Tax in 2026

As of 2026, the federal estate tax exemption has been codified as permanent and continues to be indexed for inflation. For 2026:

Single individuals: roughly $15 million exemption;
Married couples (with portability election): effectively $30 million exemption.

Amounts above these exemption levels are potentially subject to the federal estate tax, which can impose a top rate of 40% on the taxable portion of the estate.

Note for retirees: Many households fall well below these federal exemption thresholds today, but future growth in assets and changes in law can still make planning worth considering — particularly if your retirement planning involves concentrated wealth, closely held business interests, or high-basis assets that may appreciate significantly over time.

Estate Tax vs. Probate vs. Inheritance

It’s important to distinguish:

Estate tax is paid by an estate on the value of its assets above the exemption threshold before distributions to heirs;
Probate is a legal process for settling an estate and is not the same as the estate tax;
Non-Probate Assets, such as IRAs, 401(k), Transfer on Death accounts, or Life Insurance may still be included in your taxable estate;
Inheritance tax (where it exists) is imposed on beneficiaries after assets are distributed.

State Estate & Inheritance Taxes

Even if your estate is below the federal threshold, many states may still impose their own taxes with much lower exemption amounts. Examples (as of late 2025/early 2026):

State	Estate Tax Exemption	Estate Tax?	Inheritance Tax?
Connecticut	~$13.99M	Yes	No
Hawaii	~$5.49M	Yes	No
Illinois	~$4.0M	Yes	No
Maine	~$7.0M	Yes	No
Maryland	~$5.0M	Yes	Yes
Massachusetts	~$2.0M	Yes	No
Minnesota	~$3.0M	Yes	No
New York	~$7.16M	Yes	No
Oregon	~$1.0M	Yes	No
Rhode Island	~$1.80M	Yes	No
Vermont	~$5.0M	Yes	No
Inheritance only (e.g., Kentucky, Nebraska, New Jersey, Pennsylvania)	—	No	Yes

Many other states do not impose either tax, but tax landscapes can change. Checking your own state’s rules is important.

For a detailed explanation of how retirement income and distributions interact with taxes overall, see our Retirement Tax Planning hub.

Ways to Reduce or Manage Future Estate Tax Liability

The following strategies — many of which also align with broader retirement income and tax planning — can help manage potential estate tax exposure:

1. Lifetime Gifting

Use the federal gift tax annual exclusion (indexed yearly) to transfer wealth gradually outside your estate. Gifts reduce the size of your taxable estate and can benefit heirs while you’re alive.

2. Charitable Giving & QCDs

Charitable gifts reduce your taxable estate and may also offer income tax benefits. Qualified Charitable Distributions (QCDs) from IRAs at age 70½+ can further support this approach. See our article on QCDs from your IRA for more.

3. Irrevocable Trusts

Irrevocable vehicles such as Irrevocable Life Insurance Trusts (ILITs), Grantor Retained Annuity Trusts (GRATs), and Generation-Skipping Trusts (GSTs) can transfer assets out of your taxable estate.

4. Family Limited Partnerships (FLPs)

An FLP can allow you to pass interests in family businesses or investments to heirs, often at a valuation discount for gift/estate tax purposes.

5. Shifting Asset Titling & Beneficiary Designations

Proper titling and beneficiary designations (e.g., TOD/199A, payable-on-death accounts) can help ensure assets pass outside probate and align with estate goals, though they don’t directly reduce estate taxes.

6. Roth Conversions

Converting traditional IRAs to Roth IRAs can reduce future taxable assets in your estate and leave heirs with tax-free accounts, potentially lowering overall tax burden. Note: This strategy involves paying income taxes now for potential estate tax benefits later.

7. State Residency Planning

Relocating to a state without estate or inheritance tax can remove that state tax exposure for your heirs (see list above). However, overall tax implications — including property and income taxes — should be part of the decision.

8. Trusts and Other Advanced Planning Tools

Beyond ILITs and GRATs, specialized trusts (e.g., Dynasty Trusts, Charitable Remainder Trusts) can further tailor how assets are preserved or transferred across generations.

Frequently Asked Questions (Retiree-Focused)

Q: Who pays estate tax — the estate or the heirs?
The estate generally pays any federal estate tax due before assets are distributed to beneficiaries. Inheritance taxes (in certain states) are paid by the beneficiaries on what they receive.

Q: Does leaving assets to a spouse avoid estate tax?
Yes. Transfers between spouses (if both are U.S. citizens) are usually fully exempt from federal estate tax under the unlimited marital deduction.

Q: Do retirement accounts count toward the estate tax?
Yes — Traditional IRAs, 401(k)s, and other pre-tax retirement accounts are included in the value of your taxable estate, even if they pass outside probate.

Q: Should I update my estate plan now even with high exemptions?
Yes. High exemptions don’t replace the need for thoughtful planning. Estate plans also govern incapacity, guardianship wishes, distribution timing, and beneficiary protections — issues independent of tax levels.

For how retirement income sequencing and taxes correlate in later life, see our Retirement Income Planning Hub.

Estate planning is not just about taxes — it’s about how your savings support you and your loved ones. If you’d like a planning-first discussion about how federal and state estate tax considerations fit into your long-term retirement goals, you’re welcome to Request an Introductory Conversation.

Stretch IRA & Inherited IRA Rules (Updated for 2026)

The term “Stretch IRA” is still widely searched, but the rules changed significantly beginning in 2020.

However, an extremely important distinction must be made at the outset:

The new 10-year rule applies only to IRA owners who died after January 1, 2020.

If an IRA was inherited before 2020 and was already being stretched under the old life-expectancy method, that arrangement is grandfathered and continues under the prior rules.

This article explains:

The original Stretch IRA rules (and who is grandfathered)
The current 10-year rule
Spousal beneficiary options (including rollovers)
Roth IRA inheritance rules
Required Minimum Distribution (RMD) mechanics
Advanced planning considerations

This is a comprehensive technical overview.

Grandfathered Stretch IRAs (Pre-2020 Deaths)

If the original IRA owner died before January 1, 2020, and a designated beneficiary began taking Required Minimum Distributions (RMDs) using the life expectancy method:

That beneficiary continues under the original stretch rules.
Annual RMDs are calculated using the IRS Single Life Expectancy Table.
The distribution schedule continues as originally established.

These accounts are not subject to the 10-year rule.

This distinction is critical. Many families assume the new law retroactively applies — it does not.

The 10-Year Rule (Post-2020 Deaths)

If the IRA owner died after January 1, 2020, the SECURE Act rules apply.

For most non-spouse beneficiaries:

The inherited IRA must be fully distributed by December 31 of the 10th year following the year of death.
If the original owner died before reaching RMD age, then there are no required annual minimum distributions in years 1–9 in most cases. The entire account must be empty by the end of year 10.
If the original owner passed away after reaching RMD age, then the beneficiaries must continue to withdraw RMDs annually in years 1-9 as well as empty the account by year 10.

This applies to:

Traditional IRAs
SEP IRAs
SIMPLE IRAs
Roth IRAs (with important distinctions discussed below)

Eligible Designated Beneficiaries (Who Can Still Stretch)

Certain beneficiaries may still use life expectancy payout rules.

These “Eligible Designated Beneficiaries” include:

Surviving spouses
Minor children of the IRA owner
Disabled beneficiaries (as defined by IRS rules)
Chronically ill beneficiaries
Individuals not more than 10 years younger than the IRA owner

For these beneficiaries, annual RMDs are calculated using IRS life expectancy tables.

Important: Minor children lose the stretch option upon reaching the age of majority, at which point the 10-year rule begins.

Spousal Beneficiary Options (Comprehensive Discussion)

Spouses have the most flexibility when inheriting an IRA.

A surviving spouse may:

1. Treat the IRA as Their Own (Spousal Rollover)

The spouse rolls the inherited IRA into their own IRA.

Advantages:

RMDs are delayed until the spouse reaches their own required beginning date (currently age 73 or 75 depending on birth year).
The account is treated as if it were always theirs.

Disadvantages:

If the surviving spouse is under age 59½ and needs access to funds, withdrawals may be subject to the 10% early withdrawal penalty.

2. Remain as a Beneficiary (Inherited IRA)

Instead of rolling the IRA into their own name, the spouse can keep it as an Inherited IRA.

Advantages:

Withdrawals are not subject to the 10% early withdrawal penalty, even if the spouse is under 59½.
May provide flexibility if income is needed before full retirement age.

Disadvantages:

RMDs may begin sooner depending on circumstances.

Choosing between a rollover and remaining a beneficiary depends on age, income needs, retirement timing, and tax strategy. This is not a mechanical decision.

Roth IRA Beneficiaries

Roth IRAs follow similar structural rules but differ in tax treatment.

For IRA owners who died after January 1, 2020:

Most non-spouse beneficiaries must withdraw the entire Roth IRA within 10 years.
However, Roth distributions remain income-tax free if the five-year rule was satisfied by the original owner.

Unlike traditional IRAs:

Roth IRAs do not require lifetime RMDs for the original owner.
Roth beneficiaries under the 10-year rule are not required to take annual distributions, but the account must be emptied by year 10.

Eligible Designated Beneficiaries of Roth IRAs may still stretch distributions over life expectancy.

Even though distributions are tax-free, the 10-year rule still accelerates account depletion compared to the old stretch.

Required Minimum Distributions Under Current Law

For inherited IRAs where the original owner died after 2020:

Non-eligible beneficiaries follow the 10-year rule.
Eligible Designated Beneficiaries follow life expectancy tables.
Grandfathered pre-2020 inherited IRAs continue under original life expectancy schedules.

For surviving spouses who roll over the IRA:

RMDs follow standard owner rules.
Required Beginning Date depends on birth year under current RMD law.

These distinctions matter significantly for retirement income planning.

Tax Implications of Inherited IRAs

Distributions from inherited Traditional IRAs are taxable as ordinary income.

This may:

Increase marginal tax brackets
Trigger Medicare IRMAA surcharges
Expose income to Net Investment Income Tax (NIIT)
Increase state income taxes

Because the 10-year rule compresses distributions, beneficiaries must plan proactively rather than waiting until year 10.

Inherited IRA distributions often intersect with broader retirement tax planning strategies and retirement income coordination.

Planning Strategies Under the 10-Year Rule

The loss of the traditional stretch means:

Income may be clustered
Tax brackets may spike
Medicare premiums may increase

Planning opportunities may include:

Spreading distributions over 10 years
Coordinating withdrawals during lower-income years
Evaluating Roth conversions during the original owner’s lifetime
Aligning inherited IRA withdrawals with retirement income needs

These discussions often integrate with retirement income planning and legacy coordination.

Important Clarifications

Pre-2020 inherited Stretch IRAs remain under original life expectancy rules.
The 10-year rule only applies to post-2020 deaths.
Spouses retain unique rollover flexibility.
Roth IRA beneficiaries are subject to the 10-year depletion rule but enjoy tax-free distributions.
Eligible Designated Beneficiaries may still stretch.
If the original owner did not complete their RMD in the year of death, the beneficiaries must take an RMD that year.

Final Thoughts

The term “Stretch IRA” still appears frequently in search, but today’s planning revolves around Inherited IRA distribution timing under the 10-year rule and applicable exceptions.

These rules are complex, and poor timing can create unnecessary tax exposure.

If you or your beneficiaries are managing an inherited IRA and want to coordinate distributions with retirement income, tax brackets, and Medicare planning, you are welcome to request an introductory conversation here:

👉 https://goodlifewealth.com/appointment/

These discussions are educational and planning-focused, helping families make informed decisions under today’s rules.