The Balancing Act of Estate Planning

Estate planning requires a balancing act of providing the greatest benefits to loved ones while saving on income and estate taxes and safeguarding savings from beneficiaries’ creditors. This balance requires careful consideration alongside proper legal and financial tools.

Saving on Taxes

Unfortunately, estate and income taxes might be quite the hurdle for you and your beneficiaries. They reduce the amount of wealth you are able to pass on. On the bright side, there are steps to take to save on these taxes. Creating trusts, giving gifts, and setting up tax-advantaged investment accounts are all ways to save on these taxes.


Trusts, which are legal arrangements in which the holder of a right gives it to another person, can be structured in various ways to reduce taxes. Irrevocable trusts pay their own income tax. Therefore, the trust’s accounts and property can grow estate tax-free for the beneficiaries. Irrevocable trusts offer you asset protection on the accounts and property transferred to the trust. However, this type of trust sometimes requires the use of your lifetime gift and estate tax exclusion or annual gift tax exclusion.


If done properly, gifting money and property reduces the amount that is subject to estate tax. Currently, the annual gift tax exclusion, which is the largest amount you can give to someone without federal gift tax concerns, is $17,000 per recipient and $34,000 per recipient for married couples. It’s possible to gift a total of over twelve million dollars during the span of your lifetime before triggering federal estate tax.

Typically, gift recipients are in lower tax brackets and thus obligated to pay less tax on income generated by the accounts and property. It’s important to note that accounts or property could appreciate significantly in value from when they were acquired. In this case, the recipient might end up with a substantial capital gains bill if and when they decide to liquidate or sell. Furthermore, if you gift accounts and property to your loved ones, you will no longer be able to control how the money is managed or how the property is used.

Tax-Advantaged Investment Accounts

Leveraging tax-advantaged investment accounts, such as 401(k)s and IRAs, is another method to save on income taxes. These type of accounts let the account holders defer on taxes until retirement. Moreover, other investment accounts, such as Roth IRAs and Roth 401(k)s, allow account holders to make after-tax contributions, with any subsequent earnings and withdrawals being tax-free.

Protecting Assets

Protecting wealth from creditors is another crucial consideration when estate planning. If assets are not properly protected, creditors may be able to seize them to satisfy a debt.

Creating a trust with certain terms is one way to protect wealth. A spendthrift provision can be included in a trust. It prevents a trust beneficiary from using a future distribution to secure credit. A discretionary trust can give the trustee discretion over when and how to distribute assets to the beneficiary. This allows the trustee to avoid distributions that could be seized by creditors. A properly drafted discretionary trust restricts the amount of money and property, including income, that the beneficiary has access to.

It’s important to note, trusts and individuals can be taxed differently when it comes to income. Individuals are subject to a graduated income tax system. As income rises, the tax rate increases. In 2023, the top marginal tax rate for individuals is 37 percent, for income over $523,600 for individuals and over $628,300 for married couples who file jointly.

On the other hand, trusts, are subject to a compressed tax bracket system. This means the top marginal tax rate of 37 percent applies to any income over $13,451. Therefore, trusts could be subject to a higher tax rate for income than an individual in the same tax bracket.

Irrevocable trusts can shield assets from the grantor’s creditors because once property is placed in the irrevocable trust, the grantor no longer owns or controls the property. Because of this, creditors usually have no claim to assets in an irrevocable trust.

Providing Access To Beneficiaries

Protecting assets from creditors and saving on taxes is a crucial consideration in estate planning. However, ensuring your beneficiaries have total access to their inheritance is also critical. It’s possible to structure your estate plan to allow for unhindered distribution to beneficiaries with the creation of a revocable living trust with lenient distribution instructions. It should be noted, allowing beneficiaries maximum access to their inheritance is not without risk. It may increase their exposure to creditors and legal claims, such as divorce. Moreover, beneficiaries may be tempted to spend the money or liquidate the property unwisely.

Law & Stein Can Help

Balancing estate planning interests requires careful consideration that we can help with. We’ll advise you on how to best accomplish your estate planning goals and priorities. Law & Stein will help you navigate complex issues and create an estate plan that achieves your objectives.