Trusts for Tech Workers

A trust is a legal arrangement in which one party — the trustee — holds and manages assets on behalf of one or more beneficiaries, according to terms set by the person who created it — the grantor. Trusts are not just for the ultra-wealthy. For tech workers at large companies who accumulate significant wealth through equity compensation, own a home in California, and have charitable intentions, a trust is often the most important legal document they will ever sign — and the one most commonly put off until it is too late.

The two fundamental categories are revocable trusts and irrevocable trusts. They serve different purposes, carry different tax consequences, and are used at different stages of wealth accumulation. Most tech workers need both eventually.

Revocable Living Trusts: The Foundation of California Estate Planning

A revocable living trust (also called a revocable trust or inter vivos trust) is a trust you create during your lifetime that you can modify, amend, or revoke entirely at any time. You are typically both the grantor and the trustee — you retain full control over the assets, can buy and sell freely, and manage everything exactly as you did before. The trust exists as a legal entity on paper, but functionally you are in the same position as if you owned the assets directly.

What changes is what happens when you die. Assets held in a revocable living trust pass directly to your named beneficiaries without going through probate — the court-supervised process for validating a will and distributing assets.

Why Probate Avoidance Matters Enormously in California

California has some of the most expensive and time-consuming probate proceedings in the country. Probate fees in California are set by statute and applied to the gross value of the estate — not the net value after mortgages:

• 4% of the first $100,000
• 3% of the next $100,000
• 2% of the next $800,000
• 1% of the next $9,000,000

These fees apply to both the attorney and the personal representative (executor) — meaning the statutory fee is effectively doubled. A Bay Area tech worker who owns a $2 million home and has $3 million in investment accounts has a $5 million gross estate. Statutory probate fees on that estate: $63,000 per party — $126,000 in total when both attorney and executor collect their full statutory fee — before any extraordinary fees, which courts can approve on top of the statutory base. The math per party: 4% of $100k ($4,000) + 3% of $100k ($3,000) + 2% of $800k ($16,000) + 1% of the remaining $4M ($40,000) = $63,000. The process typically takes 12–24 months.

A revocable living trust eliminates probate entirely for assets titled in the trust. It is one of the highest-return legal investments a California homeowner can make — a one-time attorney fee of $2,000–$5,000 to create the trust versus tens of thousands of dollars and years of court proceedings.

Revocable Trusts and Taxes: No Benefit During Your Lifetime

A revocable trust provides no income tax or estate tax benefit while you are alive. Because you retain control, the IRS treats the trust as a grantor trust — all income is taxed on your personal return, and the assets remain part of your taxable estate. The value of a revocable trust is entirely about the transfer process at death, not tax optimization during life.

California conforms to this treatment. Trust income in a revocable grantor trust is taxed to the grantor at individual rates — up to 13.3% at the state level — exactly as if the trust did not exist.

Irrevocable Trusts: Giving Up Control to Gain Tax Benefits

An irrevocable trust, once created and funded, generally cannot be modified or revoked by the grantor. You give up control of the assets. In exchange, those assets are typically removed from your taxable estate, may be shielded from creditors, and can produce significant tax advantages for high-net-worth individuals.

For tech workers who have accumulated meaningful wealth through RSUs, stock options, and appreciated company stock, irrevocable trusts are where the most sophisticated tax planning happens. Several specific trust structures are particularly relevant.

Grantor Retained Annuity Trust (GRAT): The RSU Strategy

A GRAT is an irrevocable trust designed to transfer asset appreciation to heirs with little or no gift tax. You transfer assets — typically appreciated stock or pre-IPO shares — into the GRAT and receive back a fixed annuity payment over a set term (often 2–5 years). The IRS assumes the trust will earn a baseline rate of return called the Section 7520 rate. Any appreciation above that rate passes to your beneficiaries completely gift-tax free at the end of the term.

Example: You transfer $5 million of company stock into a 3-year GRAT when the 7520 rate is 5.2% (rates are set monthly by the IRS and fluctuate with interest rate conditions — in the mid-2020s they have been materially higher than the near-zero rates of the 2010s, which raises the hurdle the asset must clear). The IRS expects the trust to return principal plus roughly 5.2%/year in annuity payments. If the stock instead appreciates to $9 million over three years, the excess above the hurdle passes to heirs free of gift tax. You received your annuity payments back; only the appreciation beyond the 7520 hurdle transfers.

An important caveat for the current environment: GRATs are less effective when the 7520 rate is high. In the 2010s, rates near 0.5% made almost any appreciation a windfall for heirs. With rates in the 4–6% range in the mid-2020s, the asset must substantially outperform a meaningful hurdle before any value transfers. GRATs still work — they just require more conviction that the contributed asset will significantly outperform the prevailing rate. Pre-IPO shares and early-stage company stock, where 10x appreciation is plausible, remain strong GRAT candidates even at higher rates. Mature public company stock with modest expected returns is a weaker fit.

GRATs are particularly powerful for tech workers holding pre-IPO shares at a low 409A valuation — all gain above the 7520 hurdle passes to heirs tax-free if the company goes public at a much higher price. RSU-heavy employees can also GRAT recently vested shares they expect to appreciate further. The downside: if you die during the GRAT term, the assets revert to your estate. GRATs are deliberately kept short (2 years is common) to minimize this mortality risk.

Charitable Remainder Trust (CRT): Concentrated Stock and Charitable Giving

A Charitable Remainder Trust is an irrevocable trust that allows you to donate highly appreciated stock — including a large concentrated position in company shares — without paying capital gains tax on the sale, receive an income stream for life or a term of years, take an immediate partial charitable deduction, and ultimately leave the remaining balance to charity.

The mechanics: you transfer appreciated stock into the CRT. The trust sells the stock — capital gains tax free, because the CRT is a tax-exempt entity. The proceeds are reinvested in a diversified portfolio. You receive annual income from the trust (typically 5–8% of the trust's value per year, either fixed or unitrust). At the end of the trust term or your death, the remaining balance goes to your designated charity or donor-advised fund.

For a senior engineer at Google, Meta, or Apple sitting on $3 million of appreciated company stock with a near-zero cost basis, selling outright would trigger roughly $500,000–$600,000 in federal long-term capital gains tax plus 13.3% California state tax — a total tax bill approaching $900,000. Transferring to a CRT instead: zero capital gains tax at sale, a charitable deduction worth 20–40% of the contributed amount (depending on the trust structure and your age), and a lifetime income stream from the full $3 million rather than $2.1 million after taxes.

The trade-off: the residual passes to charity, not heirs. For tech workers with charitable intent and concentrated single-stock risk, this trade is often compelling — particularly when combined with a life insurance policy in a separate trust (an ILIT, described below) to replace the wealth directed to charity.

Irrevocable Life Insurance Trust (ILIT): Keeping Insurance Proceeds Out of Your Estate

Life insurance death benefits are income-tax free to beneficiaries. But if you own the policy, the death benefit is included in your taxable estate. For a tech worker with a $5 million term life policy, that $5 million is added to the estate and potentially subject to federal estate tax.

An ILIT owns the life insurance policy instead of you. The death benefit passes to the trust, outside your estate, and is distributed to beneficiaries free of both income tax and estate tax. The grantor funds the trust each year with cash gifts to cover the insurance premiums — but there is a critical mechanical requirement: those gifts do not automatically qualify for the annual gift tax exclusion ($19,000 per beneficiary in 2026) simply because the amount is within the limit.

To qualify for the annual exclusion, a gift must be a gift of a "present interest" — the recipient must have an immediate right to use it. A gift into an irrevocable trust is normally a gift of a future interest and does not qualify. ILITs use a specific workaround called a Crummey power: after each premium payment is contributed to the trust, the trustee sends formal written notice (a "Crummey letter") to each beneficiary informing them they have a limited window — typically 30 days — to withdraw their share of the contribution. Almost no one ever exercises this right, but the legal right to withdraw is what converts the gift into a present interest and qualifies it for the annual exclusion. Without properly executed Crummey notices each year, the premium contributions count against your lifetime exemption rather than the annual exclusion. ILIT administration is not complicated, but it must be done correctly every year.

ILITs are particularly common among tech workers who have used up much of their lifetime gift and estate tax exemption through equity transfers and want to pass additional wealth to heirs without estate tax exposure. The ILIT essentially creates a bucket of wealth that sits entirely outside the estate.

Spousal Lifetime Access Trust (SLAT): Removing Assets While Keeping Access

A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The grantor spouse transfers assets into the trust — removing them from the combined estate — while the beneficiary spouse retains access to income and principal from the trust during their lifetime. Because the beneficiary spouse can access the assets, the family is not entirely cut off from the transferred wealth.

SLATs are most commonly used when a couple wants to lock in a large gift tax exemption now — particularly given the uncertainty around future estate tax law changes — while retaining some practical access to the transferred assets through the beneficiary spouse. The critical risk: if the marriage ends in divorce or the beneficiary spouse dies, the grantor spouse loses all access to the trust assets. Each spouse can create a SLAT for the other, but the trusts must be meaningfully different in structure to avoid the "reciprocal trust doctrine," which would cause the IRS to treat each spouse as having retained control and pull the assets back into the estate.

California-Specific Trust Considerations

No California Estate Tax — But Federal Applies

California has no state estate tax. Assets passing at death are subject only to federal estate tax, which applies above the federal exemption amount at a flat 40% rate.

The federal exemption underwent a significant scheduled change on January 1, 2026. The Tax Cuts and Jobs Act of 2017 roughly doubled the exemption to approximately $13–$14 million per person. That provision was set to sunset at the end of 2025, reverting to pre-2018 levels — approximately $7 million per person, adjusted for inflation. Whether Congress acted to extend or make permanent the higher exemption before the deadline determines which figure now applies. Consult a tax advisor for the current threshold.

The practical stakes for tech workers are high regardless of the outcome. A married couple with a combined estate of $15 million was well under the combined $28 million TCJA exemption but potentially $1 million over the combined $14 million post-sunset exemption — exposed to a $400,000 federal estate tax bill that did not exist the year before. This is exactly the scenario that irrevocable trust strategies like SLATs — which lock in the current exemption by making taxable gifts now — were designed to address before a sunset occurs. For those who did not act before January 1, 2026, the planning options are narrower but not exhausted.

Federal and California Tax Rates on Irrevocable Trust Income

Irrevocable trusts face severely compressed federal income tax brackets. In 2026 a trust reaches the top federal rate of 37% on income above approximately $15,000 — a threshold that individual filers do not hit until income exceeds roughly $600,000 (married filing jointly). This federal compression is the primary tax drag on undistributed income held inside an irrevocable trust and makes distributing income to lower-bracket beneficiaries — or investing in tax-efficient instruments — an important planning consideration.

California's trust brackets, by contrast, mirror those of an individual filing as single. A trust does not reach California's top marginal rate of 13.3% (including the Mental Health Services Act surcharge) until taxable income exceeds $1 million — the same threshold as for individual single filers. California income tax is therefore not significantly more compressed at the trust level than at the individual level; the acute compression problem is federal, not state.

California also taxes the undistributed income of irrevocable trusts based on the residency of the trustee and beneficiaries — not just the trust's situs. A California-resident beneficiary of an out-of-state trust may owe California income tax on trust distributions, even if the trust was established in a state with no income tax. This is a frequently missed trap when tech workers try to use Nevada or South Dakota trust structures to avoid California taxation.

Proposition 19 and Trust Planning for Real Estate

California's Proposition 19, effective February 2021, significantly changed how real estate is treated when transferred between parents and children. Before Prop 19, children could inherit a parent's property and retain the parent's low property tax base (the Prop 13 assessed value) regardless of the property's use. Under Prop 19, children who inherit a primary residence can only retain the parent's assessed value if they occupy the home as their primary residence within one year — and only up to $1 million above the assessed value. Investment properties and vacation homes lose the inherited low assessed value entirely.

For Bay Area tech workers with parents who bought homes decades ago at a fraction of current values, Prop 19 dramatically changed the inheritance calculus. A home with a $200,000 assessed value (and a $150,000/year property tax bill would have been negligible) and a current market value of $3 million now triggers a reassessment at market value if the inheriting child does not move in. Trust planning that worked pre-2021 may no longer achieve the intended property tax outcome.

Community Property and Trust Funding

California is a community property state. Assets acquired during marriage are generally owned 50/50 by each spouse, which affects how trusts are funded and how step-up in basis rules apply at death. Community property receives a full step-up in basis on both halves when either spouse dies — a significant tax advantage over separate property or jointly-held assets in common-law states, where only the decedent's half receives a step-up.

Married couples in California often use a joint revocable living trust that holds all community property. At the first spouse's death, the trust typically splits into a survivor's trust (revocable) and one or more irrevocable subtrusts to capture estate tax planning benefits while maintaining the community property step-up. Getting this structure right requires California-specific trust drafting — generic out-of-state trust documents often fail to optimize community property treatment.

Common Mistakes Tech Workers Make with Trusts

Mistake 1: Creating a Trust but Not Funding It

A revocable living trust only avoids probate for assets that are titled in the trust's name. Many people pay an attorney to draft a trust and then never transfer their bank accounts, brokerage accounts, and real estate into it. At death, those untitled assets go through probate anyway — defeating the entire purpose. Funding the trust means retitling every significant asset to the trust and updating beneficiary designations on accounts that pass by contract (retirement accounts, life insurance). This step is as important as signing the trust document itself.

Mistake 2: Holding Concentrated Stock Without a Plan

A senior engineer at Google, Amazon, or Meta who has accumulated $5–10 million in company stock faces two risks simultaneously: concentration risk (a single company represents most of their net worth) and potential estate tax exposure. The tools to address both — GRATs, CRTs, charitable strategies — require advance planning and years to execute. Waiting until the stock has appreciated to an uncomfortable size, or until a liquidity event forces the issue, eliminates the most powerful strategies. GRATs work best with assets that have room to grow above the 7520 rate; a stock that has already tripled has less room than one at the beginning of its appreciation.

Mistake 3: Ignoring the Trust After It Is Signed

Trusts are living documents that should be reviewed every three to five years and after major life events — marriage, divorce, the birth of children, significant changes in net worth, moving to a new state, or changes in tax law. A trust drafted in 2015 for a couple with one child and a $500,000 net worth may be completely inappropriate for the same couple in 2026 with three children and a $6 million estate. Outdated trustees, stale beneficiary designations, and trust structures designed for a different wealth level are common problems in estate planning for tech workers whose compensation grew faster than their planning kept pace.

Mistake 4: Assuming a Living Trust Replaces a Will

A revocable living trust does not replace a will entirely. You still need a pour-over will — a simple will that directs any assets not titled in the trust at death to "pour over" into the trust. Without it, untitled assets pass under California's intestacy laws, which may not match your intentions. You also typically need powers of attorney for financial decisions and healthcare directives, which operate independently of the trust. A complete California estate plan includes all four documents: the trust, the pour-over will, a durable power of attorney for finances, and an advance healthcare directive.