Estate Planning: Wills, Trusts, and Asset Protection

Probate is the court-supervised process for validating a will and distributing the deceased's assets, and it applies only to assets that were titled in the deceased's name alone without a beneficiary designation or survivorship right.

A will does not avoid probate. It governs the probate process. Every asset that passes through probate is subject to court fees, potential creditor claims during the administration period, and public disclosure of the estate's contents. In states with lengthy or expensive probate processes, a revocable living trust that holds most significant assets can eliminate probate entirely, transferring assets to beneficiaries immediately upon death without court involvement.

Beneficiary designations on retirement accounts, life insurance policies, and payable-on-death bank accounts are among the most powerful and most overlooked estate planning tools. They override the will entirely, and an outdated beneficiary designation naming a former spouse or a deceased parent controls the asset regardless of what the will or trust says. An attorney who handles estate administration and probate matters can audit all beneficiary designations and account titling as part of the planning process rather than leaving discrepancies for family members to discover after death.

An irrevocable trust achieves its estate tax benefits because assets transferred to the trust are no longer owned by the grantor and therefore are not included in the taxable estate at death.

The federal estate tax exemption is $13.61 million per individual in 2024, indexed for inflation, but it is scheduled to sunset at the end of 2025 and revert to approximately half that amount under current law unless Congress acts. High-net-worth individuals who transfer assets to irrevocable trusts before the exemption decreases lock in the current higher exemption amount. Common irrevocable trust structures used for estate tax planning include irrevocable life insurance trusts, which keep life insurance proceeds out of the taxable estate, and spousal lifetime access trusts, which transfer assets out of the grantor's estate while allowing the grantor's spouse to receive distributions.

Asset protection trusts hold assets in a manner that makes them unavailable to the grantor's future creditors while still allowing the grantor to benefit under certain structures permitted in states with favorable trust laws. An attorney who handles irrevocable trust and asset protection planning matters can evaluate which trust structure fits the client's tax exposure, creditor risk, and desire to retain access to the transferred assets.

The federal estate tax exemption is scheduled to decrease at the end of 2025 under current law. A married couple with a combined estate above the post-sunset exemption level who has not transferred assets to irrevocable trusts before that date will lose the opportunity to use the current higher exemption amount permanently. The planning that takes advantage of the current exemption must be completed while the exemption is still available, not after the deadline has passed.

Medicaid planning addresses one of the most significant financial risks facing older Americans: the cost of nursing home or assisted living care, which can exceed $100,000 per year and deplete an estate that took decades to build.

Medicaid provides coverage for long-term care costs but requires the applicant to spend down most of their assets before becoming eligible. The Medicaid look-back period examines asset transfers made within five years before the application and penalizes transfers made for less than fair market value by imposing a period of Medicaid ineligibility. Effective Medicaid planning transfers assets outside the look-back window, typically through irrevocable Medicaid asset protection trusts established at least five years before care is needed.

A Medicaid asset protection trust allows the grantor to transfer assets to an irrevocable trust while retaining the right to receive income from the trust during their lifetime. The principal of the trust is protected from Medicaid spend-down requirements once the five-year look-back period has passed. An attorney who handles Medicaid planning matters can evaluate the appropriate timing and structure for a Medicaid trust given the client's age, health, and asset composition.

Medicaid planning must begin before a care crisis occurs, not after one begins. The five-year look-back period means that an irrevocable trust established the day before a nursing home admission provides no Medicaid protection. A client who waits until they or a spouse needs care to begin planning has already lost most of the options that early planning would have preserved. The best time to establish a Medicaid trust is when the client is healthy and the five-year window can actually run.

Estate planning is the process of arranging in advance for the distribution of your assets at death, the management of your affairs during incapacity, and the minimization of taxes and administrative costs that reduce what your family ultimately receives. A complete estate plan typically includes a will, a revocable living trust if probate avoidance is a goal, a durable power of attorney for financial matters, a healthcare power of attorney, a healthcare directive, and a review of all beneficiary designations and account titling to confirm they align with the overall plan.

A will takes effect at death, must pass through probate court before assets are distributed, and is a public document. A revocable living trust takes effect immediately, holds assets during the grantor's lifetime, transfers assets to beneficiaries at death without probate, and remains private. Both documents can specify who receives specific assets and name guardians for minor children. The primary advantage of the revocable living trust is probate avoidance and continuity of asset management during incapacity. An attorney who handles revocable trust and estate planning matters can evaluate which structure is more appropriate given the composition of the client's assets and the states where property is held.

The federal estate tax applies to estates above the applicable exemption amount at a top rate of 40 percent. The exemption is $13.61 million per individual in 2024, meaning estates below that threshold owe no federal estate tax. The exemption is portable between spouses, allowing a surviving spouse to use any unused exemption from the deceased spouse's estate. The current exemption is scheduled to decrease at the end of 2025, making planning that uses the current higher amount time-sensitive for high-net-worth individuals. An attorney who handles estate and inheritance tax planning can calculate the applicable exposure and identify which planning strategies reduce it most efficiently.

Dying without a will, called dying intestate, means state intestacy laws determine who receives your assets. These laws distribute assets according to a fixed formula based on family relationships, without regard for your actual wishes. A surviving spouse typically receives a share, with children receiving the remainder, but the specific allocation varies by state. Assets pass through probate under court supervision, which takes time and costs money. Beneficiary designations on retirement accounts and insurance policies still control those assets regardless of intestacy, which can produce unintended results if they were not recently updated.

A durable power of attorney is a legal document that authorizes a designated agent to manage your financial affairs if you become incapacitated. It is durable because it remains effective even if you become mentally incapacitated, unlike a standard power of attorney that terminates upon incapacity. Without a durable power of attorney, a court must appoint a conservator to manage your financial affairs, a process that is public, expensive, and can take months. The healthcare power of attorney serves the same function for medical decisions. An attorney who handles durable power of attorney and estate planning matters can draft both documents to meet the specific requirements of the applicable state.

The annual gift tax exclusion allows each individual to give up to $18,000 per recipient per year in 2024 without reducing the lifetime estate and gift tax exemption and without filing a gift tax return. A married couple can combine their exclusions to give $36,000 per recipient per year. Gifts above the annual exclusion are applied against the lifetime exemption but produce no immediate tax unless the total lifetime gifts exceed the exemption amount. Direct payments to educational institutions for tuition and to healthcare providers for medical expenses are not subject to gift tax limits regardless of amount, making them highly efficient wealth transfer strategies. An attorney who handles gift tax planning can structure a systematic gifting program that reduces the taxable estate efficiently over time.