Sarah D. McDaniel, CFA

Jan 28, 2025

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The Building Blocks of Estate Planning Techniques (And a Cheat Sheet for When to Use Which)

Trust, tax, and estate planning can be intimidating to behold. Not only is there a sea of new terminology, acronyms, and legalese to decipher, there’s also an enormous gravity to the decisions being made and how they’ll affect the financial wellbeing of a client’s loved ones. 

There are three sequential components underpinning trust, tax and estate planning: wealth stages, objectives, timing & deployment. Creating an optimized plan requires understanding the interdependence of each of these building blocks and how they relate to a client’s estate.

In this article, we’ll walk through how these three elements add up to effective trust, tax, and estate planning. 

The building blocks: Wealth stages, objectives, timing & deployment 

1. Wealth stages

Of course, determining an appropriate planning technique hinges largely on a client’s wealth stage. They are: 

• Base: The amount of money someone needs during their (and their family’s) lifetime to live according to the lifestyle they choose. Generally, this represents non-taxable estates.
• Cushion: The base amount plus additional assets to maintain a “rainy day” fund for unexpected developments such as health issues and/or investment performance. Generally, this represents estates on the cusp of being taxable.
• Excess: This is a level of wealth that far exceeds what is required or desired during a person or their family members’ lifetimes. Generally, this represents taxable estates. 

2. Objectives

Once you’ve determined which stage your client might be in, the next building block to consider is what “objective” their plan aims to achieve. Then within each objective, there are potentially relevant trust, tax, and estate techniques that could be deployed.

Understanding and selecting the right techniques 

First, it’s important to understand that many estate planning techniques simply come down to different types of trusts. While there are many different types of trusts with various structures and purposes, most share the same foundational components: 

• The time period of the trust
• The annual income distributions
• The lump sum distribution of the trust’s remainder at the end of the time period

Beyond these core trust components, there are variables that are specific to a trust’s goals: 

• Taxability
• Who pays the tax
• Who the income and remainder beneficiaries are

When combined, these core components and variables distinguish planning techniques. 

3. Timing & deployment

The final building block is determining when and how to deploy the appropriate techniques. Determining the technique to employ in a client’s plan involves more than their current financial situation; it also includes considering whether or not a technique is necessary or can be a beneficial opportunity over time if suitable conditions arise. Conditions may include: 

• Fiscal policy: Absolute and relative tax rates as well as allowable exemption or exclusion amounts within current legislation
• Monetary policy: Absolute and relative interest rates that determined the “hurdle rates” above which techniques might be successful

For the techniques influenced by monetary policy, there are specific market environments that are more favorable to implement and invest in, like high/low interest rates and market returns. 

Finally, some types of assets are more suited to certain techniques. 

Making planning accessible to everyone through their life cycle and wealth stages 

Trust, tax and estate planning, implementation and investing should be a continuous portfolio management process given the multi-faceted set of opportunities arising from changes in personal circumstances and market conditions throughout the year and over time.  

Here’s how Vanilla makes it easy to assist and guide you through the process

• Projections: To illustrate which wealth stage your client is currently in and might be in in the future, Projections show the impact of income, expenses and assets growing together over time. 
• Calculators: To analyze how trust, tax and estate techniques might fulfill your client’s objectives, Calculators enable you to input and adjust the characteristics of different types of techniques to illustrate the impact on beneficiaries as well as estate tax.
• Scenarios: To assess the timing and deployment of techniques, Scenarios synthesizes the three decisions put into context of a client’s overall estate plan and quantifies the degree and directional impact of deploying techniques over time.

Download the complete “cheat sheet” for aligning estate planning building blocks with the appropriate techniques here.