Contributed by: Brian Sak, CFP®, CLU®, ChFC®
At this point in the year, most families with significant wealth are focused on charitable gifts, tax-loss harvesting, and preparing for year-end distributions. But amidst the flurry of financial activity, one critical area often goes unchecked: your trusts.
For wealthy families, business owners, and executives—particularly those with complex estate plans—trusts are often a key component of multigenerational wealth transfer, asset protection, and tax minimization strategies. Yet too often, trusts are created, then left dormant or mismanaged. As a result, what was once a well-designed structure can quietly unravel.
At Granite Harbor Advisors, we view trust planning not as a one-time event but as a living, breathing part of your overall financial architecture. Maintenance matters. One misstep—such as improper funding, misaligned distributions, or failure to observe key tax rules—can erode decades of planning, potentially resulting in unintended estate inclusion, tax inefficiency, or even IRS scrutiny.
This article offers a detailed year-end review framework to help ensure your trusts are not only still intact—but still working exactly as intended.
The Most Common Point of Failure: Is Your Trust Properly Funded?
No matter how sophisticated the trust language or how skilled the drafting attorney, a trust that isn’t properly funded is nothing more than a piece of paper. In our experience, this remains the single most common and costly oversight in high-net-worth estate planning.
Funding failures can take many forms:
- Title to assets not transferred correctly
- Beneficiary designations still pointing to individuals instead of trusts
- Business interests partially transferred, leading to unintended ownership outcomes
- Undocumented or unexecuted promissory notes that leave taxable gifts exposed
Failure to transfer assets into an irrevocable trust—whether it’s a Spousal Lifetime Access Trust (SLAT), an Intentionally Defective Grantor Trust (IDGT), or a Dynasty Trust—can lead to estate inclusion under IRC §2036 or §2038, undermining the trust’s tax advantages and triggering unexpected estate tax.
The end of the year is the ideal time to:
- Review trust schedules and confirm asset transfers are complete
- Ensure supporting documentation (such as deeds, assignments, and promissory notes) is in place and correctly executed
- Revisit beneficiary designations on retirement accounts, insurance policies, and annuities
- Coordinate with trustees and legal counsel to resolve any funding discrepancies before year-end
At Granite Harbor Advisors, we proactively help clients and their legal teams audit these details, because one mistake can trigger cascading tax consequences.
Trusteeship: Fiduciary Duties, Tax Reporting, and Distributions
Even a properly funded trust can create problems if its administration is neglected. Trustees—whether corporate or individual—must uphold fiduciary responsibilities with diligence. That includes proper recordkeeping, timely tax filings, and appropriate distributions according to the terms of the trust.
Consider the tax complexity alone:
- Grantor Trusts: If your trust is classified as a grantor trust under IRC §§671–679, income is taxed to the grantor—even if the trust retains the earnings. This can be strategic when used intentionally, but it must be tracked and reported precisely.
- Non-Grantor Trusts: For non-grantor trusts, undistributed income retained by the trust is subject to compressed trust tax brackets, with the highest federal rate of 37% kicking in at just $15,200 of taxable income (2025 levels).
- Distribution Requirements: Distributions to beneficiaries may shift income tax responsibility, but if done improperly, they can violate trust terms or unintentionally disqualify certain provisions like generation-skipping transfer (GST) tax exemptions.
- Promissory Notes and Installment Sales: If a promissory note exists between a grantor and the trust (e.g., via an IDGT strategy), failure to correctly accrue and document interest payments can raise questions about valuation and IRS compliance under IRC §1274 and §7872.
Trust administration is not a once-a-year event, but the year-end presents a natural opportunity to:
- Review trustee reports and distribution logs
- Confirm whether any income must be distributed to avoid trust-level taxation
- Ensure K-1s and other reporting requirements are on track for Q1
- Revisit interest payments and amortization schedules on intra-family notes
We frequently coordinate with clients’ CPAs and attorneys to ensure trust administration aligns with tax law and strategic goals.
Aligning Trusts With Liquidity and Portfolio Strategy
A well-constructed trust can preserve and grow wealth for generations, but only if it integrates with the broader financial picture. Too often, trusts are funded with illiquid assets—real estate, private company shares, or alternative investments—without a plan for how to generate income, cover distributions, or pay taxes.
This disconnect becomes particularly dangerous when a trust is expected to make annual distributions, repay a promissory note, or satisfy estate tax liabilities at the grantor’s passing.
Key considerations include:
- Liquidity Planning: Are there sufficient liquid assets in the trust to meet near-term obligations? If not, what is the plan for asset sales or refinancing?
- Investment Policy Statements (IPS): Does the trust have an IPS tailored to its purpose, timeline, and distribution requirements?
- Private and Public Market Coordination: Are trust-held investments diversified across public and private markets, and does the strategy reflect the risk profile of the trust's beneficiaries?
- Inter-Entity Coordination: Are trust assets aligned with the portfolio management strategy across the family enterprise, including partnerships, LLCs, and operating businesses?
Granite Harbor Advisors is uniquely positioned to oversee both sides of the equation. Our access to both public and private market investments, combined with a deep understanding of trust planning, allows us to align fiduciary management with long-term strategic objectives. We help families avoid liquidity traps and ensure their trusts are functioning as both protective structures and growth engines.
The Hidden Risk: Inattention
What’s most dangerous about trust mismanagement is that the effects are often invisible—until it’s too late.
A trust improperly funded five years ago may still appear intact, yet create significant estate inclusion if the IRS audits the decedent’s estate. A missed interest payment on a note may seem immaterial—until valuation discounts are challenged or the legitimacy of the sale is questioned. Misclassified trust income may go unnoticed—until a compressed tax bracket eats up 37% of what could have passed more efficiently to beneficiaries.
This is why the Granite Harbor approach focuses on continuous engagement, not episodic advice. Our team of professionals brings a collaborative, cross-disciplinary approach that integrates legal, tax, and investment perspectives to maintain the integrity of our clients’ planning—year after year.
Trusts are not fire-and-forget tools. They require upkeep, recalibration, and thoughtful coordination with your broader financial life. We work with you—and with your team—to ensure nothing gets lost in translation.
Final Thoughts
If your trusts were created years ago and haven’t been reviewed recently, or if the details of funding, administration, or tax strategy feel disconnected from your portfolio and liquidity planning, now is the time to re-engage.
Your estate plan is only as strong as its weakest link. And when it comes to trusts, that weak link is often buried deep in paperwork or overlooked in execution. At Granite Harbor Advisors, we help uncover those hidden risks—before they become real problems.
By the end of each year, we recommend a comprehensive review that includes:
- Verifying asset funding and titling
- Reviewing trustee activity and compliance
- Coordinating tax planning with your CPA
- Aligning trust strategy with your investment plan and liquidity needs
It’s not just about checking boxes. It’s about protecting what you’ve built.
Disclosure: This information is provided for general educational purposes only and should not be considered tax, legal, or accounting advice. Tax laws are complex and subject to change. Before making any decisions or implementing any strategies, consult with a qualified CPA or tax professional who can evaluate your specific situation.