A trust is a legal arrangement where one party (the trustee) holds and manages property for the benefit of another (the beneficiary). Trusts serve many purposes—avoiding probate, protecting assets, minimizing taxes, and caring for loved ones. Understanding different trust types helps you choose the right tool for your estate planning goals.
How Trusts Work
Every trust involves three roles: the grantor (or settlor) who creates and funds the trust, the trustee who manages the trust assets, and the beneficiaries who receive benefits from the trust.
One person can occupy multiple roles. With a revocable living trust, you're typically the grantor, trustee, and beneficiary during your lifetime.
Revocable vs. Irrevocable Trusts
Revocable trusts can be changed or cancelled by the grantor at any time. They're flexible but don't provide asset protection or tax benefits—the assets are still considered yours.
Irrevocable trusts cannot be easily changed once created. In exchange for giving up control, irrevocable trusts can protect assets from creditors and reduce estate taxes.
Living Trusts vs. Testamentary Trusts
Living trusts (inter vivos trusts) are created during your lifetime. They can be revocable or irrevocable. Revocable living trusts are the most common estate planning trusts because they avoid probate while maintaining flexibility.
Testamentary trusts are created by your will and come into existence after death. They must go through probate before being established.
Common Trust Types
Revocable living trusts primarily avoid probate and provide privacy. Irrevocable life insurance trusts (ILITs) remove life insurance from your taxable estate. Special needs trusts provide for disabled beneficiaries without jeopardizing government benefits. Charitable trusts support charitable causes while providing tax benefits. Spendthrift trusts protect beneficiaries from their own poor financial decisions and creditors.
Trusts for Probate Avoidance
Assets in a properly funded trust avoid probate at death. The trust—not the deceased—owns the assets, so there's nothing for probate to transfer. This saves time, money, and maintains privacy since probate is public.
However, you must actually transfer assets into the trust. An unfunded trust doesn't avoid probate.
Trusts for Asset Protection
Some trusts protect assets from creditors, lawsuits, and divorce. Asset protection typically requires irrevocable trusts created before problems arise. Transferring assets to trusts after being sued can be fraudulent conveyance.
Domestic asset protection trusts are available in some states; offshore trusts provide additional protection but with complexity.
Trusts for Tax Planning
Various trusts minimize estate and gift taxes. These become important for estates exceeding federal exemption amounts. Strategies include grantor retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs), and charitable remainder trusts.
Tax planning trusts are complex and require professional guidance.
Trusts for Family Planning
Trusts provide control over how and when beneficiaries receive inheritances. You can specify conditions (reaching certain ages, completing education), protect against divorce, and ensure fair treatment of blended families.
Do You Need a Trust?
Not everyone needs a trust. Consider a trust if you want to avoid probate, have a taxable estate, have minor children or dependents, want to control inheritance timing, have assets in multiple states, or want privacy about your estate.
Simpler estates may do fine with just a will, beneficiary designations, and joint ownership.
Getting Legal Help
Estate planning attorneys design trusts tailored to your specific goals and circumstances. They ensure trusts are properly drafted and funded. Given the complexity and importance of getting trusts right, professional guidance is essential.