Trust Strategies (5 Trusts)
The 5 Trusts That Quietly Save Business Owners Millions (And When Each One Actually Works)
Most business owners think a "trust" means the revocable living trust they signed to avoid probate. Five trust structures actually solve five different problems — and which one you need depends entirely on which problem is yours.
The Quick Read
For a $500K–$10M revenue business owner, “trust” is not one tool — it is at least five. The ILIT keeps life insurance proceeds out of your taxable estate. The GRAT transfers business appreciation to your children at minimal gift-tax cost. The IDGT lets you sell your business interest to a grantor trust at today's valuation, locking in the discount. The CRT lets you exit a concentrated stock position without paying capital gains. The SLAT lets you use the $15M federal exemption while both spouses are still living. Each one solves a different problem. None of them are interchangeable. Most owners need two or three.
- Why “Trust” Isn't One Thing
- The Five Trusts, Visualized
- Trust 1 — ILIT: Keeping Life Insurance Out of Your Estate
- Trust 2 — GRAT: Transferring Business Appreciation at Minimal Gift Cost
- Trust 3 — IDGT: Selling Business Interest to Lock In Today's Valuation
- Trust 4 — CRT: Selling Concentrated Stock Without Capital Gains
- Trust 5 — SLAT: Using the $15M Exemption While Both Spouses Are Living
- Worked Example: How a Charlotte Owner Stacked Three of the Five
- Frequently Asked Questions
The most common conversation we have when reviewing a new client's estate plan goes like this. Owner: “Yes, we have a trust.” Us: “Which one?” Owner: “The one our attorney drafted.” The trust they're describing is almost always a revocable living trust — the document that keeps assets out of probate when you die. It is a useful, often necessary, base layer. It is also one of at least five trust structures that a $500K–$10M revenue business owner could be using, each solving a different problem, and none of which are substitutes for each other.
OBBBA has reshaped the trust planning conversation in two ways that matter. The federal estate exemption was made permanent at $15 million per individual and $30 million per married couple, removing the urgency that had been driving large lifetime gifts before the prior law's scheduled 2025 sunset. And the basis-step-up rules, the §1202 QSBS rules, and the §645 election timing have all been preserved without changes — meaning the longstanding playbook for transferring business equity into trusts during life remains intact, just with less time pressure.
This piece walks through the five trust structures every owner with a closely-held business should understand, what specific problem each one solves, when each pencils out, and how they interact with each other. It is not a substitute for working with an estate attorney. It is the framework you need to walk into the attorney's office knowing what to ask for.
Why “Trust” Isn't One Thing
A trust is a legal arrangement in which a grantor transfers property to a trustee to hold and manage for the benefit of one or more beneficiaries. That definition tells you almost nothing about which trust is which, because the practical differences live in three dimensions: revocable versus irrevocable (can the grantor undo it?), grantor versus non-grantor (who pays the income tax on trust earnings?), and the specific transfer-tax mechanism (annuity, sale, charitable split-interest, spousal access). Each of the five trusts below picks a different combination from those three axes to solve a specific planning problem.
The single revocable living trust most owners already have addresses one and only one problem: probate. It is functionally a will substitute. If your planning needs go beyond avoiding probate — if you have a business that will appreciate, life insurance that will be taxable, concentrated stock you want to diversify, or an estate large enough to consider lifetime gifts — you need a different trust on top of it. Often more than one.
The Five Trusts, Visualized
Each trust solves a distinct problem. The chart below maps the five problems to the five structures — and shows which combinations stack cleanly for owners with multiple planning needs at once.
Trust 1 — ILIT: Keeping Life Insurance Out of Your Estate
The Irrevocable Life Insurance Trust solves the most-overlooked estate tax exposure for affluent business owners: their own life insurance. Most owners assume life insurance is tax-free. Income tax-free, yes — the death benefit is excluded from the recipient's income under §101. Estate tax-free, no. If you own a policy on your own life, the death benefit is included in your taxable estate under §2042 — even though your heirs receive it directly from the insurer.
For an owner with a $5M policy intended to fund a buy-sell agreement or provide estate liquidity, that inclusion can mean $1.5–$2M of incremental federal estate tax (when the estate exceeds the exemption), plus state estate tax in the eighteen jurisdictions that impose one. The ILIT removes the policy from the estate by having the trust own the policy from inception. The grantor makes annual gifts to the trust (using Crummey notices to qualify for the annual exclusion); the trust pays the premiums; the death benefit lands in the trust outside the taxable estate.
For business owners with closely-held companies, ILITs are particularly important when the policy funds a buy-sell or provides estate liquidity to pay tax on illiquid business interests. The post-Connelly buy-sell landscape (covered in our companion piece on buy-sell funding) has made ILIT-owned policies the recommended structure for most multi-owner businesses.
Trust 2 — GRAT: Transferring Business Appreciation at Minimal Gift Cost
The Grantor Retained Annuity Trust is the cleanest way to move future appreciation of an asset out of your estate without using meaningful gift-tax exemption. The mechanics: you transfer an asset to the GRAT for a fixed term (typically two to ten years). The trust pays you back an annuity each year. At the end of the term, whatever is left over — the appreciation above the IRS hurdle rate (the §7520 rate) — passes to your beneficiaries gift-tax-free.
The classic structure is the “zeroed-out” or Walton GRAT: the annuity payments are sized so the present value equals the value of the asset transferred, producing zero taxable gift. If the asset outperforms the §7520 rate over the term, the excess passes to beneficiaries free of gift and estate tax. If it underperforms, you keep your annuity payments and lose nothing — the strategy is asymmetric.
For a $500K–$10M revenue business owner, GRATs work best for two specific assets: closely-held S-corp or LLC interests with strong growth ahead (the GRAT captures the upside), and pre-IPO or pre-liquidity-event stock where the discount-for-lack-of-marketability can be applied at funding. With the §7520 rate currently in the 5% range, any business growing faster than that rate is a candidate.
Trust 3 — IDGT: Selling Business Interest to Lock In Today's Valuation
The Intentionally Defective Grantor Trust is the gold-standard structure for removing a closely-held business interest from your estate while you continue to pay the trust's income tax — effectively funding additional wealth transfer without using your gift-tax exemption.
The mechanics are unusual at first glance. You sell your business interest to the IDGT in exchange for an installment note bearing interest at the AFR (the applicable federal rate, typically lower than the §7520 rate). The trust pays you principal and interest over the note term. Because the trust is “defective” for income tax purposes — meaning you, the grantor, are treated as the owner under §671–§679 — the sale is not recognized for income tax. No capital gain is triggered. But the trust is a separate person for estate and gift tax purposes — meaning the asset and its future appreciation are out of your estate.
The compounding effect: you continue to pay the trust's income tax each year out of your own funds, which is not treated as an additional gift to the trust. Over a ten- or twenty-year horizon, that income-tax payment functions as additional tax-free wealth transfer. For a closely-held business owner with an asset growing at 8–15% annually and a 30%–40% effective tax burden, the math compounds aggressively.
IDGTs are most powerful when funded with discount-eligible interests — minority, non-voting, or LP interests — where appraisal discounts of 25–40% are defensible at funding.
Trust 4 — CRT: Selling Concentrated Stock Without Capital Gains
The Charitable Remainder Trust is the right tool when an owner faces a single concentrated position with massive embedded gain — classic fact patterns: a founder with public-company stock from an acquisition, an executive with vested RSUs from a long-tenured employer, a pre-exit owner contemplating a sale of the business through the trust.
The mechanics: you donate the appreciated asset to the CRT. The CRT sells the asset and pays no capital gains tax (CRTs are tax-exempt under §664). The CRT pays you an annuity or unitrust amount for life or a fixed term. At the end of the term, the remainder passes to a charity of your choice. You receive a partial charitable income tax deduction at funding for the present value of the remainder interest.
For an owner with $5M of concentrated stock at a $1M cost basis, a CRT defers roughly $950K of federal capital gains tax (at 23.8%) and converts the position to a diversified income stream paying out 5–7% of trust value annually. The CRT works best for owners who already plan to make significant charitable gifts at death anyway — the structure converts an inevitable charitable transfer into a current tax-efficient diversification mechanism.
Trust 5 — SLAT: Using the $15M Exemption While Both Spouses Are Living
The Spousal Lifetime Access Trust is the answer to a specific tension: you want to use the federal gift-tax exemption now (in case future law changes shrink it), but you don't want to permanently part with assets you might still need access to. The SLAT lets each spouse create an irrevocable trust for the other, gifting assets into it using the gift-tax exemption. The non-grantor spouse is a beneficiary and can take distributions, preserving practical access to the assets while removing them from both spouses' estates.
The complications matter and should not be glossed over. The reciprocal trust doctrine (Estate of Grace, 395 U.S. 316) prevents both spouses from creating identical trusts for each other; the structure must be meaningfully different on at least two key dimensions (timing, terms, beneficiaries, trustees). And SLAT access depends on the marriage continuing — divorce or death of the beneficiary spouse permanently eliminates the access. These are non-trivial considerations and are the reason SLATs require careful design and full disclosure to both spouses.
For owners with $5M+ of business value and meaningful expectations of continued growth, SLATs remain a powerful tool even with OBBBA's permanent $30M married exemption — particularly when paired with discount valuation of business interests.
Worked Example: How a Charlotte Owner Stacked Three of the Five
"Tom and Margaret," Charlotte $7M S-Corp + $3M Life Insurance
Tom owns a 22-person engineering consulting firm valued at roughly $7M, structured as an S-corp. The business throws off $850K of distributable income annually and has been growing at 12% per year. Tom carries $3M of term life insurance to fund the firm's buy-sell with two minority partners. Tom and Margaret have a combined estate of roughly $11M and two adult children.
Their existing structure: a single revocable living trust drafted in 2017, naming the children as remainder beneficiaries. That document handles probate and nothing else.
The coordinated three-trust plan they implemented in 2026:
ILIT — receives the $3M life insurance policy:
removes $3M from taxable estate; preserves buy-sell funding
GRAT — funded with $1.5M of S-corp non-voting shares:
five-year zeroed-out structure; transfers ~$900K of appreciation
to children gift-tax-free if business hits 12% growth target
SLAT — funded by Tom for Margaret's benefit, $4M discounted
S-corp interest (35% LP discount applied):
uses $2.6M of Tom's federal exemption; preserves access
The directional planning effect:
Estate-tax exposure removed (federal + NC): roughly $0
Future appreciation transferred outside estate: ~$5M–$8M
Buy-sell funding preserved without inclusion: $3M death benefit
Margaret retains practical access to SLAT assets
The revocable living trust they had in 2017 still exists and still serves its original probate-avoidance purpose. The three new trusts each address a distinct problem the original document was never designed to solve.
Illustrative composite. Actual outcomes depend on appraisal results, §7520 and AFR rates at funding, business performance, applicable state law, and the design of each trust. Trust planning at this scale requires coordination among an estate attorney, CPA, and financial advisor.
Frequently Asked Questions About Trusts for Business Owners in 2026
If my estate is below the $15M federal exemption, do I still need any of these trusts?
Yes — with one exception. The CRT, ILIT, GRAT, and IDGT all solve problems that exist below the federal exemption: probate cost, life insurance estate inclusion, capital gains on concentrated stock, and locking in current valuation discounts. Only the SLAT is meaningfully exemption-driven and is most relevant for owners projected to grow into or above the exemption over time.
My attorney drafted me a "trust" already. Isn't that enough?
It depends entirely on which trust. A revocable living trust handles probate avoidance and nothing else. The five trust structures above each solve a different problem and each requires its own document. Most owners with $500K–$10M revenue have two or three planning problems simultaneously, which means two or three trusts on top of the revocable living trust they already have.
How does OBBBA affect trust planning in 2026?
OBBBA made the higher federal estate exemption permanent at $15M individual / $30M married, removing the urgency that had been driving large lifetime gifts before the prior law's scheduled 2025 sunset. It did not change the mechanics of any of the five trusts described here. The strategic effect: less time pressure to fund SLATs at the $30M level, but no change to the planning case for ILITs, GRATs, IDGTs, and CRTs.
What about asset protection trusts and dynasty trusts?
Both are real structures with legitimate use cases, but they are situational rather than foundational for most $500K–$10M revenue owners. Domestic asset protection trusts (DAPTs) work in a handful of favorable jurisdictions but face uncertain treatment in non-DAPT states. Dynasty trusts solve a multi-generational transfer problem that matters for a smaller subset of owners. Both warrant their own conversations and are not core to the foundational five.
Which trust should I set up first?
For most multi-owner business owners with significant life insurance, the ILIT is the highest-leverage starting point because the policy is already in place and the inclusion problem is already accruing. For single-owner businesses with strong projected growth, the GRAT or IDGT is usually the next conversation. For owners contemplating a near-term sale, the CRT or pre-sale planning becomes time-critical. Sequence depends on facts.
The right number of trusts for a $500K–$10M revenue business owner is rarely one. It is usually two to four, each designed to solve a distinct planning problem the others do not address. The mistake is not having too many trusts. It is having one trust labeled “the trust” and assuming it does work it was never designed to do.
If you are evaluating whether your existing structure is matched to your actual planning problems, that is the conversation we are built for.
This article is for educational purposes only and does not constitute individualized tax, legal, or investment advice. Tax law is current as of the 2026 tax year and may change. Consult with a qualified estate attorney and tax advisor regarding your specific situation. Llewellyn Financial is a fee-only, fiduciary RIA based in Charlotte, NC.
