12 Types of Trusts: A Quick Look

There are a myriad of trusts available…enough to make your head spin! It’s no wonder that creating an estate plan can seem daunting. However, we know all of the types of trusts inside and out and do it every day. So we know how to design a customized estate plan tailored precisely for your specific situation.

Here is a quick overview of the basics of twelve types of trusts that will give you with a general perspective of some of the more common trusts available. However, please know that when we meet all you need to do is share your goals and insights into your family and financial situation, then we will design your estate plan utilizing the trusts and other mechanisms that are best suited for your specific situation.

1. Bypass Trust. Commonly referred to as a credit shelter trust, family trust, or B trust, a bypass trust contains a portion of a deceased spouse’s accounts and property and uses the deceased spouse’s lifetime exclusion amount to reduce or eliminate estate tax. Because this trust is established at the first spouse’s death, this trust’s unique design bypasses estate taxes at the second spouse’s subsequent death.
2. Charitable Lead Trust. A charitable lead trust (CLT) is a trust which provides a stream of income to charities of your choice for a designated period of years or a lifetime. Afterwards, whatever is left in it goes to you or your designated beneficiaries with significant tax savings.
3. Charitable Remainder Trust.  A charitable remainder trust (CRT) is a trust which provides a stream of income to you for a designated period of years or a lifetime and then gives the remainder to the charities of your choice with significant tax savings.
4. Special Needs Trust. A special needs trust provides money or property for the benefit of someone with special needs without disqualifying them from receiving governmental benefits. Federal laws allow special needs beneficiaries to receive certain types of benefits from a carefully crafted trust without defeating their eligibility for government benefits.
5. Generation-Skipping Trust.  A generation-skipping trust (GST) allows you to distribute your money and property to your grandchildren, or even later generations, without taxation, by using your lifetime exemption to offset any tax that could be due.
6. Grantor Retained Annuity Trust. A grantor retained annuity trust (GRAT) is an irrevocable trust which provides you with an annuity for a specific amount of time based on the value of the property in the trust. At the end of the annuity period, the remaining money and property is transferred to your designated beneficiaries that you named. This type of trust is used to make large financial gifts to your loved ones of accounts or property that are expected to grow in value at a higher rate than the annuity rate being paid back to you in order to avoid estate and gift taxes on the difference.
7. Irrevocable Life Insurance Trust. An irrevocable life insurance trust (ILIT) is designed to own high-value life insurance policies and receive the payment of their death benefits. The benefit of this type of trust is that the life insurance proceeds are excluded from the deceased’s estate for estate tax purposes. However, the proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance.
8. Marital Trust. A marital trust is designed to protect the accounts and property for the surviving spouse’s benefit, as well as qualify for the unlimited marital deduction. These accounts and pieces of property are excluded from estate taxes at the first spouse’s death but are included in the surviving spouse’s estate for estate tax purposes.
9. Qualified Terminable Interest Property Trust. A qualified terminable interest property (QTIP) trust initially provides income to the surviving spouse and, upon the surviving spouse’s death, the remaining money and property are distributed to other named beneficiaries, while still allowing the trust to qualify for the unlimited marital deduction. These are commonly used in second marriage situations and to maximize estate and generation-skipping tax exemptions and tax planning flexibility.
10. Testamentary Trust. A testamentary trust is a trust that is created at death in a Will. This type of trust is commonly used to protect the money and property on behalf of a beneficiary as opposed to transferring the money and property to the beneficiary outright. It can be used when a beneficiary is too young to manage their own money or property, has medical or drug issues, or may be incapable of responsibly managing their own money. The trust can also provide asset protection from lawsuits, or a claim by a divorcing spouse brought against the beneficiary. Unlike a revocable living trust or an irrevocable trust, where property should be transferred into the trust during the trustmaker’s lifetime to work properly and avoid probate, testamentary trusts require the lengthy and expensive probate process before the trust is created.
11. Inter-Vivos Trust. An inter-vivos trust simply mean is a trust that is created during your lifetime as opposed to a testamentary trust that is created at your death. There are many types of inter vivo trusts, including many of the trusts on this list.
12. Revocable Living Trust. This type of trust is the most common trust of them all. It is used to avoid the lengthy and expensive probate process. However, this type trust does not provide asset protection from lawsuits, or a claim by a divorcing spouse brought against the beneficiary. Property must be transferred into the trust during your lifetime to work properly and avoid probate.

There are many more types of even more advanced trusts available that accomplish various tax and planning goals. Our experienced team at the Skokos Law Firm will custom design the perfect plan for you using only those trusts which are necessary and appropriate to achieve your goals.

Give us a quick call today at 501.725.8800 or shoot us an email at [email protected] to create your optimal estate plan that will eliminate taxes, avoid probate, pass on your wealth to your loved ones precisely as you intend and create a lasting legacy. We are passionate about helping you!