Trusts are a valuable estate planning tool and are frequently used to avoid the probate system. When you set up a trust, you (the “settlor”) place assets in the hands of a trustee. The trustee manages the property for the benefit of your designated beneficiaries.
What Are Some Common Types of Trusts?
Generally, there are two forms of trusts: revocable and irrevocable trusts. A revocable trust can be modified or terminated during the settlor’s lifetime. An irrevocable trust is a trust that cannot be altered or terminated by the settlor once created. In most states, trusts are presumed irrevocable unless otherwise stated.
However, revocable and irrevocable trusts come in a variety of forms and are established for many reasons, Some of the most common types of trusts include:
- Charitable Trust: A trust established to benefit a particular charity or the public.
- Custodial Trust: A revocable trust that names a custodial trustee to manage the assets of an incapacitated or disabled beneficiary.
- Discretionary Trust: A trust that delegates discretion to the trustee to decide when and how to distribute trust assets to the beneficiary. Discretionary trusts do not set up fixed distributions, but provide general guidelines for the trustee.
- Dynasty Trust: A generation-skipping trust designed to minimize taxation of great family wealth as it is passed to subsequent generations.
- Land Trust: A land-ownership arrangement where the trustee holds title to the land and the beneficiary has the power to direct the trustee, manage the property, and draw income from the trust.
- Living (or Inter-Vivos) Trust: A trust that is created and takes effect during the settlor’s lifetime. Often these trusts are designed to be "revocable," so that the settlor maintains the ability to remove property from the trust.
- Special Needs (or Supplemental Needs) Trust: A trust that provides supplemental income for a disabled person who is receiving or may be eligible to receive government benefits. An inheritance or large gift can reduce or eliminate certain government benefits (such as SSI). Special Needs trusts work around this issue.
- Testamentary Trust: A trust that is included under the terms and conditions established in a will and takes effect when the settlor dies.
Other Types of Trusts
While some of the most common types of trusts are discussed above, there are many other types of trusts, including:
- Asset Protection Trusts,
- Bypass (or AB) Trusts,
- Clifford (or Short-Term) Trusts,
- Crummey Trusts,
- Implied Trusts,
- Pooled Trusts,
- Secret (and Semi-Secret) Trusts,
- Spendthrift Trusts, and
- Totten Trusts.
Do I Need an Attorney to Create a Trust?
Most people cannot draft trust documents without the help of an trust and estate lawyer. An experienced lawyer can help you select the correct type of trust for your needs. And, hiring a lawyer will ensure that your documents are properly drafted and legally binding.