By Debbie Carlson

If you are planning on spring cleaning soon, put trust reviews on your to-do list.

With generous federal estate-tax exemptions made permanent in the One Big Beautiful Bill Act last year, trusts that were created years ago to shield wealth from onerous federal estate taxes may be obsolete.

Under the new tax policy individuals can exempt $15 million in assets from federal estate taxes, $30 million for couples, and those amounts will adjust for inflation annually. Estates still face a 40% federal tax rate for any money above those thresholds.

Spurred by the certainty around the federal estate-tax levels, estate planners and financial advisors are scrutinizing older trusts. Here's what to know if you have one:

As recently as 2009, the federal estate-tax exemption was $3.5 million for an individual, with the estate tax rate at 45% for anything above that exemption, according to the Tax Foundation. The estate-tax exemption was also a "use it or lose it" system, so couples had to create trusts to maximize each person's exemption or the surviving spouse's estate would face higher taxes.

Changes in tax policy in intervening years allowed widows and widowers to access their spouses' unused exemptions and now the more generous exemptions make it worth revisiting these trusts.

A lot of those old trusts, notably A/B trusts, have rigid language limiting how widows and widowers can control family money after their spouse died. When a husband and wife use an A/B trust and the wife dies, the trust is split into two parts. Her half goes into an irrevocable trust to support the husband during his lifetime, and whatever is left later goes to the other named beneficiaries, such as their children.

These trusts are outdated, says Patrick Simasko, elder law attorney and financial advisor in Michigan. Having part of the couple's money tied up in an irrevocable trust means it is difficult for the widow or widower to make future changes, such as removing a child as a beneficiary.

"There's so many rules and regulations that this trust agreement may be binding your hands to in the future," he says. "At the time the trade-off was worth it...today the tax justification for creating these types of trusts no longer exists."

There are a few options you can take if you have an old, rigid trust, Simasko says. If both you and your spouse are alive you can cancel it. You will need to retitle assets, whether to put them in a new trust or to get rid of it completely.

If you are a widow or a widower stuck in one of these old trusts, your options are limited to what the trust allows. So read it carefully. Some trusts may allow you to move assets to a new one with fewer restrictions. If beneficiaries agree, you can ask probate court to alter or terminate the trust.

Review if you can withdraw more money from the trust than what you are currently taking. Emily Boothroyd, wealth manager at Merit Financial Advisors, says doing so can save significant money as trusts are expensive and tax-inefficient.

There are costs to create the document and annual costs to maintain them. The annual taxes that most irrevocable non-grantor trusts pay can get steep quickly. It only takes $16,000 in taxable annual income for a trust to hit the highest 37% tax bracket; individuals don't hit that level until their income surpasses $640,600.

Taking assets out of trusts also can minimize capital-gains taxes for beneficiaries. When trusts distribute assets to beneficiaries, those assets are valued at the original purchase price, not the fair market value on the date the trust makes its distribution. If the trust sells the asset and sends the proceeds to beneficiaries, it passes along the capital-gains tax bill, which inheritors must pay that year. If it distributes the asset, beneficiaries can wait to sell it, deferring any tax bills.

Either way, given the rise in asset value, from real estate to stocks in the past 20 years, beneficiaries could be on the hook for big capital-gains taxes. If those same assets were in your estate, your beneficiaries will receive a step-up in basis on any assets they inherit.

Boothroyd made this move for an elderly client of hers, who was beneficiary of an old irrevocable trust. The trust allowed her client to make larger withdrawals, and she moved assets into her estate because she is in a lower tax bracket than the trust.

She pays less in income taxes on the assets than the trust would, and she plans to keep the assets in her estate, so her beneficiaries will receive a step-up in basis at her death. The move saves "her heirs a significant amount in capital-gains tax now that they are not concerned about estate-tax exemption levels," Boothroyd says.

Financial pros say reviewing newer trusts to save money on income and capital-gains taxes are a smart move as well.

Mark Weiskind, senior wealth manager at Fairway Wealth Management, says if the trust allows it, send money to beneficiaries now if they are in lower tax brackets and let them pay the income tax, rather than the trust. Sometimes trusts may also send a little extra money to cover the beneficiaries' income taxes.

Check the value of the assets in the trust. Weiskind says some trusts allow you to swap assets in an in-kind distribution without triggering taxes. He says trusts should own assets that don't produce much current income but have higher growth potential, such as index funds.

He says a client of his funded a trust 20 years ago with Apple stock that had grown to $1 million. Because the client isn't worried about hitting the estate-tax exemption ceiling, he used an in-kind distribution, bringing the Apple stock back to his estate and put in $1 million of another asset. His heirs will get step-up in basis of that Apple stock.

"Now that the estate tax isn't an issue, they put little bit more of a premium on the step-up in basis," he says.

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February 28, 2026 04:00 ET (09:00 GMT)

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