What are the different types of trusts?

Are you thinking about creating a trust, but having trouble deciding between the many different types of trusts — or knowing how to tell different trusts apart? If so, you’re not alone. There are so many different types of trusts out there — simple trusts, living trusts, testamentary trusts, and so on — that many people don’t even know where to begin.

That’s why we’ve put together a guide to the different types of trusts, from revocable living trusts that can help your family avoid probate court to inter vivos trusts that can help fund a child’s college education.

We also reached out to Patrick Hicks, Head of Legal at Trust & Will, for a few extra tips and insights. Which reminds us: Eligible Haven Term policyholders can enjoy Haven Life Plus, a bonus rider that includes no-cost revocable living trust services from Trust & Will — a roughly $700 value that has the potential to save your family both time and money.

That said, a revocable living trust isn’t the only type of trust you might want to consider. There are many different types of trusts, and we want to make sure you have the information you need to choose the type of trust that’s best for you.

While there are many different types of trusts, nearly all trusts fall into one of two categories — revocable or irrevocable.

“Revocable trusts are commonly used in estate planning,” explains Hicks. A revocable living trust, for example, provides a seamless transfer of assets after your death, avoiding costly probate court procedures. Small business owners often create revocable living trusts as part of the business succession planning process, ensuring that their businesses can transfer smoothly to new owners.

Irrevocable trusts, on the other hand, are designed to benefit you and your loved ones while you are still alive. “Some irrevocable trusts are focused on minimizing taxes — spousal lifetime access trusts, irrevocable life insurance trusts, and the like fall into this category,” Hicks explains. A good life insurance trust can help you leave a larger inheritance for your loved ones, creating generational wealth that can continue to benefit your family over time.

“Other trusts have more specific purposes, like asset protection or qualifying for Medicaid,” says Hicks. A special needs trust, for example, helps parents and guardians ensure that a child with special needs will be financially prepared for adulthood while still qualifying for as many federal and state benefits as possible.

Some types of irrevocable trusts, including a charitable lead trust and charitable remainder trust, allow you to minimize taxes while maximizing charitable support. If you’re interested in giving back to your community, an irrevocable trust could be one way to support the kinds of organizations that help neighborhoods — and people — thrive.

What is the difference between a trust and a will?

If you’ve already made a will — or if you’re thinking about creating a will in the near future — you might be wondering if you should consider setting up a trust as well. In many cases, the answer is yes.

“A trust is the most comprehensive and complete way to help ensure asset protection for your loved ones,” Hicks explains. “When you transfer trust assets to your trust, you own everything in your trust while you’re still alive. After you pass, your assets will go directly to the beneficiary who you’ve chosen.”

What’s the difference between a trust and a will? While there are many different types of trusts, each with a specific function and purpose, there’s really only one basic type of will — and a traditional Last Will and Testament can be limited in scope.

“Wills go into effect after your death and allow you to name guardians for your children and pets, designate where your assets will go, and specify your final arrangements,” says Hicks. The different types of trusts, on the other hand, give you the opportunity to clarify how your assets should be handled both during your life and after your death — while avoiding many of the burdens associated with probate and estate tax.

One of the biggest benefits of the different types of trusts is the way they can help you streamline your estate planning. Some people create family trusts or dynasty trusts, leaving specific instructions as to how their assets should be managed and distributed for generations to come. Other people create a blind trust or a discretionary trust, giving a trustee the capacity to manage the trust’s assets and determine when it is appropriate to distribute those assets to the listed beneficiary. There are so many different types of trusts that we don’t have enough space to list them all — but whether you’re thinking about setting up a QTIP trust, a Totten trust or a spendthrift trust, you have options.

How can a trust benefit you and your loved ones?

“One key benefit of creating a trust is that your loved ones will avoid the long and complicated probate court process,” says Hicks. “Trusts can simplify asset distributions after death and offer a greater degree of privacy.” By making a revocable living trust, you have the ability not only to manage the trust while you are alive — that is, to change the components of the trust over time — but also manage the way your assets will be distributed among your beneficiaries after your death.

“A trust gives you precise control over when and how assets will pass to your beneficiaries,” Hicks explains.

What are some of the other benefits of a revocable trust and an irrevocable trust? A good trust can put your wishes into writing — and, in most cases, into practice. You might want to set up an inter vivos trust to help fund a child’s education or create a trust fund for a dependent, for example. You might want to create a marital trust that ensures your surviving spouse can access funds and assets tax-free, thanks to the unlimited marital deduction. You can even set up a trust that clarifies what should happen if you become incapacitated during your lifetime. There are many different types of trusts, and each of them has the potential to benefit you and your loved ones.

Who should consider making a trust?

Since there are so many different types of trusts, nearly everyone should ask themselves whether setting up a trust could benefit them financially. That said, there are a few different groups of people who might want to prioritize making a trust:

New parents: “Parents of young children find that a trust gives more control over how children receive an inheritance than any other mechanism,” Hicks explains.

Parents of children with special needs: “Parents of children with special needs may see that some trusts preserve eligibility for governmental support in ways that would not be possible without a trust.”

People who want to avoid probate: “Individuals who are looking to avoid probate — particularly in states where probate is particularly burdensome — should consider making a trust.”

People who want to maintain privacy: “Individuals who want more privacy will benefit from a trust. Probate is a public proceeding, so wills can be publicly accessible — but trusts avoid probate and remain private.”

If you fall into one of these categories — or if you simply want to know whether any of the different types of trusts can benefit you and your loved ones — consider taking the time to look into various trusts and see if any of them might be right for your family. If you already know that you want to create a revocable living trust to avoid the expenses associated with probate court, consider using Haven Life Plus to explore the types of trusts available through Trust & Will.

After all, the time you spend today could benefit your family for generations to come.