Information about the many different types of trusts to consider during your estate planning process is below, with links to more detailed explanations and articles.
The type of trust(s) you set-up will be based on your unique set of circumstances, so it is best to determine your planning priorities before you determine a type of trust to establish.
To see how some of these trusts could be used in hypothetical situations that might be similar to yours, read the Case Studies of how trust technical structures meet specific estate planning needs.
View our Estate Planning Periodic Table to see the many options we have available to custom-design an estate plan that exactly meets your specific goals for the future.
An “A” trust is a name typically given to a trust that is for the benefit for a spouse. It is usually set up in a living trust, or can be set up in a will. It is also given the name Marital Trust, sometimes “Q-Tip” Trust. Used to avoid any taxes on the first death of a spouse.
A “B” trust uses the exemption under federal tax of the person who passes away. Typically, it provides for the spouse of the deceased; often it provides for the children. B trust uses the exemption, but keeps the money available to the spouse in case she needs it; first, spouse would spend from her own assets and any marital trust assets, which are going to be included and taxed in her estate. Also provides creditor protection if that spouse has any creditor issues that show up — usually a tax avoidance and State tax avoidance mechanism.
An “AB” trust applies to terminology used when an A trust and a B trust are used together in a plan. One isn’t leaving assets just to an B trust, but if there are any additional assets over and above what might be set aside for the spouse in a person’s exemption, then it saved in a Marital trust, or a B trust, which provides some predator protection; sometimes, it provides some prenuptial or nuptial type protection from “pool boys” and future marriages of the surviving spouse.
An ABC trust typically uses both the marital QTIP exemption (restricting access to principal) as well as the more liberal marital trust exemption, so that the A trust and C trust are marital trusts. This is done for state tax savings or marital share protection purposes for children of an earlier relationship.
A blind trust is a trust that you can’t control, and don’t know how investments are being made. A blind trust is a trust that you can’t see. You know you have it, you may get income from it, but you can’t control it and you don’t even know what is in it.
Read more at What is a Blind Trust?.
Charitable / Charity Trust
The phrases “charity trust” and “charitable trust” are very broad terms. When you think about a charitable trust, you are probably considering either a “charitable remainder trust” or a “charitable lead trust.”. So, those phrases in many cases for most people, would be interchangeable and cover a very broad spectrum of trusts that in some way are going to benefit a charitable cause.
Read more at Charitable or Charity Trusts.
Credit Shelter Trust
A Credit Shelter Trust is the same kind of trust as a B trust; it is also called a "family trust" in a living trust type of a plan, where the original trustmaker’s trust speaks to how to manage and control assets, and/or provides instructions for standards of care in the event they become disabled. Credit shelter trusts are then disbursed upon the trustmaker’s death. Their lifetime federal tax exemption typically is the amount for which the family trust (e.g., B trust, credit shelter trust) is funded.
For many, including attorneys, the names for the types of trusts are interchangeable. In addition to a living trust; the term "family trust" is also used for irrevocable trusts, where money is set aside for use by your family in the future. Family trusts are also called "Dynasty Trusts," which are trusts funded to last a long time, but not be included in anyone else’s generation. The ultimate beneficiary, if the family line ends, would be a designated charity, but provides for the family line until it is completely terminated.
A discretionary trust has its assets held in the trust by the trustee. Income and/or principal are distributed to the beneficiaries at the trustee’s discretion, which may be for health, education, maintenance and support, or similar purposes. Frequently, language is included in the trust document that refers to IRS code about "reasonable comfort," which relates to allowing the trustee to make discretionary distributions, but does not cause the assets to necessarily be included in the beneficiaries’ estate, for taxable purposes.
A family trust is that it is intended to either honor family, or it’s intended to provide for family, or both. Nearly every kind of trust that is not going to charity, and that is not going to non-family members, is a “family trust” of some kind. A family trust anticipates a connection with others that is usually blood-based.
Read more at What Is A Family Trust?.
Family Property Trust
Typically a trust that anticipates real estate and/or a family compound of some kind. Obviously, there are all kinds of property, including financial property, but most of the time a family property trust anticipates the disposition of real estate and how that real estate is going to be maintained and who it will be made available to, and governed by, typically family members.
Typically a trust that governs financial assets and provides for some kind of financial purpose. Financial trusts are sometimes used as instruments that are completely unrelated to families, but in the context of financial trusts and families, they are often related to some kind of income stream or family bank concept.
Inter Vivos Trust
Irrevocable Family Trust
A trust that is set up such that the terms can’t be changed. Most of the time, an irrevocable family trust holds assets that one is transferring from one’s estate to family members, typically putting assets in trust to provide creditor protection/asset protection of some kind. This allows beneficiary family members the time to attain a level of expertise and sophistication needed to control the assets of the trust, hopefully before the assets become available, or so the assets, while available at the trustee’s discretion or due to terms of the trust, become less available in case of a creditor event.
One typically transfers assets to an irrevocable family trust that are going to appreciate, so that one can remove them from estate before the appreciation occurs. The goal is to limit the amount applied to one’s lifetime exemption by transferring assets from the estate before the appreciation occurred.
Read more at What Is A Family Trust?
An irrevocable trust cannot be changed. It is a trust that, by its terms, can’t be changed except by terms that might be written into the irrevocable trust. It must operate according to whatever are its terms. An irrevocable trust is considered an independent person under the tax codes to the extent that it earns income that is taxable. An irrevocable trust must pay taxes at a trust rate, but it will get a deduction for distributions to beneficiaries.
Read more at Definition of Irrevocable Trust.
A land trust is a trust that holds property. Frequently, a land trust is set up as a blind trust that holds property in such a way that the trustee (usually a corporate or law firm trustee) does not know who owns the land or who the beneficiaries are.
There are also other kinds of land trusts, such as conservation land trusts and environmental land trusts that hold land and restrict its use.
Agricultural land trusts are established to more specifically define the terms that land may be used for. Generally in the US, there has been a great deal of destruction of agricultural land due to urban sprawl. One can never go back and recover the agricultural ecosystem after the topsoil is scraped off, roads have been put in, homes and businesses have been built, and the urban sprawl has occurred.
One of the reasons for the occurrance of urban sprawl is that developers find it easier and less expensive to build new communities that utilize our current transportation methodology of cars and public transportation than it is to repair inner city housing and the aging infrastructures on which they are based. The pure economics are that it is easier and cheaper to go out and buy undeveloped agricultural land and put in a new infrastructure, with cheaper materials that will deteriorate faster, than it is to renew an existing city infrastructure. Land trusts are oftentimes established to protect the land from spreading urban sprawl.
A living trust is the same as a revocable trust, a revocable living trust, and an inter vivos trust. Think of a trust as a third-party beneficiary contract where you have a trustmaker, grantor, settlor, or settlors who form a trust, basically as an agreement with a trustee party to provide for beneficiaries.
Many reasons exist to form a living trust. One of the primary selling points for forming a living trust is that at death you can avoid the legal process of probate, as long as your assets are governed by beneficiary designations and/or are titled in the name of the living trust. Property that is in an individual name will still require a probate to be put into the living trust.
Read more at Definition of Living Trust.
Revocable Living Trust
Qualified Personal Residence Trust
Frequently used to transfer vacation property, or even one’s own home, to children in a way that allows one to continue to live in the home or have the use of the property for a term of years.
A qualified personal residence trust discounts the gift to the child based on the value of the home and the number years one keeps the property. The risk of the qualified personal residence trust is that if the “resident” dies before the term of trust has expired, the entire property, and any applicable appreciation, revert back to one’s estate.
Qualified personal residence trusts are often used when a vacation property is likely to appreciate. It’s a method of freezing the gift and pushing all appreciation into the next generation, as long as the principle resident doesn’t die within that term of years.
Because it is irrevocable, a qualified personal residence trust cannot be amended or renewed. If the resident still wants to use the property after the term of the trust, they would have to enter into a new lease agreement and pay real money to lease the property from the trust.
The alternative to passing the property on is to sell it to an irrevocable trust, which would owe payment to the seller. Typically, one then forgives that note over a period of years, or as a lump sum, and then the property is held in an irrevocable trust.
Special Needs Trust
A special needs trust provides for the care of a beneficiary that is unable to care for themselves. It is often set up to provide for disabled people. It can also be set up to anticipate the needs of an elderly parent.
In some cases, a special needs trust could be utilized to include treatment of substance abuse or gambling problems in such a way that the assets would never become available for other uses. Usually, it will only provide for beneficiaries to the extent of their perceived needs over and above what government assistance provides.
Read more at What Is A Special Needs Trust?.
A spendthrift trust contains language and instructions that prevents an heir from being able to borrow against their future inheritance, so it protects the heir from their creditors. The heir can remain a beneficiary of a spendthrift trust, but the creditors cannot access distribution from the trust, because the trustee is not allowed to distribute assets to the benefit of creditors, but only to the benefit of beneficiaries.
A testamentary trust is set up by a will. The key is that testamentary trusts are given their life after a probate of a will. The will then funds those trusts, which are then deemed testamentary trusts. A typical use for a testamentary trust, also referred to as a will trust, would be when young children or minors are the beneficiaries, to protect them until they are mature enough to responsibly handle their inheritance.
Read more at Testamentary Trust Explained.
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