10 Types Of Trusts You Should Know About

Creating an effective estate plan isn’t easy. Apart from a will, there are also a wide array of trusts, all with different functions and rules. 

While you may not be able to create an estate plan on your own (you’ll need an attorney for that), you can certainly familiarize yourself with the options at your disposal and how they can help you address your specific needs. 

Here are 10 types of trusts you can use in your estate plan.

1) Living Trust

A common legal arrangement, living trusts allow individuals to decide how their assets will be managed and distributed while they’re alive and after they pass away. Once you put assets into a trust, they’re legally owned by the trust. You can maintain control of the assets contained within, and once you pass away, the assets will be transferred to your appointed beneficiaries. 

The person who creates the trust is referred to as a grantor. Once you create the trust, you’ll describe your wishes in the associated documentation and nominate a trustee who will manage the trust. Most importantly, you’ll have to name the beneficiaries who will receive the trust assets upon your death. 

With all the basics completed, you can transfer the assets into the trust. The options here are limitless and you can put almost all types of assets into the living trust as long as they are of value. 

To maintain full control over the assets during your lifetime, you can appoint yourself as the trustee. You must then name a successor trustee, who will manage the trust once you pass away or if you become incapacitated in some form while still alive. 

2) Charitable Lead Trust

The second on our list of 10 types of trusts, a charitable lead trust can provide a stream of income to a charity of your choosing for a limited period or a lifetime. When the specified period ends or you die, the remaining assets return to you or are transferred to your loved ones without tax. 

3) Charitable Remainder Trust

This trust is opposite to the previous one we mentioned. While it can also stay in effect for a designated period or lifetime, the difference is that the assets in the trust will provide a steady stream of income to you. Once the period ends or you pass away, the remainder of the assets will be transferred to a charity of your choice.

4) Generation-Skipping Trust

A generation-skipping trust provides you with the ability to transfer property to grandchildren or even later generations. The assets will have no taxation upon transfer because you’ll be using your lifetime exemption in order to offset any due taxes. 

5) Special Needs Trust

One of the most useful on our list of 10 types of trusts is a special needs trust. It allows individuals to assist for the benefit of a family member with special needs without affecting their governmental benefits. 

Federal laws typically allow the beneficiaries of these needs to receive benefits from a trust without eliminating the eligibility factors for governmental assistance. 

6) Irrevocable Life Insurance Trust

Designed for high-value life insurance policies, the irrevocable life insurance trust will become effective and receive a death benefit once the trust maker passes away. This helps exclude the proceeds of the life insurance policy from the decedent’s estate, which is useful for tax purposes. 

Furthermore, the proceeds contained within this trust will still be able to provide liquidity for tax purposes, provide inheritance, or fund any buy-sell agreements, among other things. 

7) Grantor–Retained Annuity Trust

This type of irrevocable trust provides the creator of the trust with an annuity for a designated time based on the value of the assets in the trust. Once the annuity period ends, the remaining funds will be transferred to the designated beneficiaries. 

Most people use a grantor-retained annuity trust to make substantial gifts to loved ones. For instance, property or financial accounts that will grow in value higher than the annuity rate that’s being paid back to the grantor.
 

8) Qualified Terminable Interest Property Trust

This type of trust will provide the surviving spouse with income. Once the surviving spouse passes away, the remainder of the assets are distributed to other beneficiaries without the trust losing the unlimited marital deduction ability. 

This may help individuals who want to maximize the generation-skipping tax exemption or those in second-marriage situations. 

9) Marital Trust

Marital trusts are a great option for those who want to protect their property or accounts for the benefit of their surviving spouse. Using this trust will qualify the assets for the unlimited marital deduction, which means that all the accounts and properties in this trust won’t be subject to estate taxes. 

10) Testamentary Trust

Last on our list of 10 types of trusts is the testamentary trust created in a will that becomes effective upon the grantor's death. A testamentary trust is useful for protecting assets on behalf of the beneficiary by not providing them with the money right away. For example, if the beneficiary is too young to own property or has substance abuse issues and as such, is unable to manage their finances. 

Plus, a testamentary trust also helps protect the estate from lawsuits or a claim by a divorcing spouse against the beneficiaries. 

The only downside of this trust is that it requires a lengthy probate before it’s created.

Create A Winning Estate Plan With The Law Offices Of Mary E. King

All of the 10 types of trusts you read about here have their advantages and disadvantages. No matter how useful they may look at first glance, they may not be beneficial in your circumstances. 

To use all the available estate planning tools that will help you minimize your and your estate’s tax liabilities, hire a trust attorney. At Law Offices Of Mary E. King, you can leverage decades of experience with trusts and estate planning and use it to protect your and your family’s interests - both in life and in death. 

Create an effective estate plan - call 941-906-7585 or fill out our contact form.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.