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Choosing by Life Circumstance

Three lenses decide any trust question, and you need all three. Net worth tells you how much machinery you can justify (Table 23.1). The dominant objective tells you which structure to reach for (Table 23.4). Life circumstance tells you when —and when is the lens that actually costs people money, because the other two are still true next year and the third one usually is not.

Every window closes. Almost no estate planning failure is a failure to pick the right structure. People pick correctly and act late. The structures in this chapter are options written against facts that expire, and it is worth knowing which fact kills which option:

Asset protection expires when the claim arises.: A transfer made after the creditor, the lawsuit, or the divorce filing exists is a voidable transfer in every state and gets unwound. Protective structures are built when you do not need them, which is precisely why people skip building them (section “Domestic Asset Protection Trusts (DAPTs)”).
Valuation-based transfers expire at the term sheet.: A GRAT or a sale to an IDGT moves growth out of your estate at today’s appraised value. Sign a priced round, a letter of intent, or a purchase agreement and the appraiser has to use that number. The discount and the growth both vanish the day the market prices your asset (section “Intentionally Defective Grantor Trusts (IDGTs)”).
Insurability expires with your health.: An ILIT is only as good as the policy the trustee can buy, and the trustee must be the original applicant—move an existing policy in and IRC §2035 pulls the death benefit back if you die within three years (section “Irrevocable Life Insurance Trusts (ILITs)”).
Term-based structures require you to outlive them.: A GRAT or QPRT whose grantor dies during the term returns the assets to the estate and accomplishes nothing but legal fees. Age and health are inputs to the term, not afterthoughts (section “Grantor Retained Annuity Trusts (GRATs)”, section “Qualified Personal Residence Trust (QPRT)”).
Exemption expires at death and at statutory sunset.: Unused lifetime exemption is not an asset your heirs inherit. The spousal portion is portable only if the survivor files a Form 706 electing it—a return nobody is otherwise required to file (section “Portability and the DSUE”).
Medicaid planning expires five years early.: The lookback runs sixty months back from the application, so the transfer has to precede the need by five years, which is longer than most families’ warning (section “Medicaid Asset Protection Trusts”).
Your own competence expires.: Irrevocable structures require decisions—trustee successions, Crummey notices, distribution elections—for decades, including the decades after you can no longer make them. A structure that only works while you are sharp is not a structure.

Table 23.2: Life Events and What They Trigger

Circumstance	The move	What closes the window
First child	Guardian nomination in the will, term life sized to raise them, funded revocable trust with staged or HEMS distributions. Never name a minor as a direct beneficiary (section “On Naming Minor Children as Direct Beneficiaries”).	Nothing—but intestacy and a judge decide until you sign.
Child with a disability	Third-party special needs trust, and then tell every grandparent to redirect their bequests into it (section “Special Needs Trusts”).	One well-meant outright bequest from a relative ends benefits eligibility.
Remarriage, blended family	QTIP for the new spouse’s income with the remainder to your children; a separate ILIT for your children (section “Marital Trusts: The QTIP and the A/B/C Structure”).	An outright bequest to a new spouse is theirs the day you die, to redirect as they choose.
Divorce	Rewrite the will, trust, both powers of attorney, and every beneficiary designation.	State auto-revocation statutes do not reach ERISA plans—the plan document controls, and it still names your ex.
Marriage to a non-citizen	QDOT drafting for any bequest above the exemption (section “Marital Trusts: The QTIP and the A/B/C Structure”).	There is no unlimited marital deduction; the trust must exist before the estate tax return is filed.
The business starts working	Sale to an IDGT or a GRAT now, at today’s low appraised value, with GST exemption allocated while the number is small.	The priced round or the letter of intent.
The liquidity event has closed	Too late to transfer cheaply. Pivot: a CRT for the concentrated low-basis block (section “Charitable Remainder Trusts”), a DAPT for the proceeds, funded before any claim exists.	Already closed—this row is the consolation prize.
Estate is large and illiquid	ILIT with the trustee as original applicant, sized to the projected tax so heirs are not forced sellers (section “Irrevocable Life Insurance Trusts (ILITs)”).	Underwriting. Buy while healthy or not at all.
Approaching or over the exemption	Use it. One SLAT, not two mirror-image ones—the reciprocal trust doctrine of United States v. Estate of Grace, 395 U.S. 316 (1969), unwinds matched pairs and puts both back in the estates (section “Spousal Lifetime Access Trusts (SLATs)”).	Death, and whatever Congress does to the exemption.
Retirement accounts are the largest asset	Decide conduit versus accumulation deliberately; do not name a trust by reflex (section “Naming a Trust as Your Retirement-Account Beneficiary”).	The ten-year rule runs regardless, and a trust that fails the see-through test shortens it further.
Real property in a second state	Retitle into the revocable trust or an LLC.	Ancillary probate in that state, on top of the one at home.

The events that need no new trust. Most of them. A raise, a new job, a move within the same state, a market run-up, a new brokerage account, a grandchild—these call for a beneficiary designation review and a funding check, not a structure. The failure mode at the top of the balance sheet is not having too few trusts; it is owning a shelf of them that nobody has re-read in a decade, drafted against an exemption and a rate schedule that no longer exist, holding assets that were never actually retitled into them. Review the whole plan every three to five years and after any row in Table 23.2, and count an unfunded trust as no trust at all.

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