What Are The Different Types of Trusts?

Jan 26, 2022Trusts

Leslie Thomas, Attorney

There are many reasons to establish a trust. People choose different types of trusts to plan ahead for the end of their life and also to help their heirs avoid probate.

Avoiding probate court to access assets after your death is a key benefit of a trust. However, many people also wish to ensure their family, and especially their children, will have streamlined access to their inheritance, but at the appropriate ages and pre-established terms. 

There are many different types of trusts. It is important to understand not only the different types of trusts to choose from but which trust makes the most sense for you and your family’s situation. First, let’s talk about the general definition.

What Is A Trust?

A trust is a legal document created while an individual is living that survives after their death. Their use dates back to the 1500’s in England.

This legal document outlines the transferable right to their assets upon their passing. These assets may include money, for example, bank account(s), but also real property and investments.

It also serves to legally outline a set of rules and/or instructions for how the trustee (the person holding the trust) and the beneficiary (the person to whom the assets belong after the individual has died) can access or transfer the assets, and upon which circumstances.

Before explaining the types of trusts, it is important to clarify the different roles in this process. The trustee is the person who holds the legal title of the assets placed inside the trust upon creation, and legal authority to execute its terms. The beneficiary is the person(s) who holds the equitable title to the trust assets while the grantor remains alive. They will later receive these transferred assets held in the trust as specified by its terms. (Oftentimes beneficiaries are a surviving spouse or child, but they do not have to be).

What Are the Different Types of Trusts?

There are several different types of trusts which serve different objectives. We will primarily focus on the most common trust instruments in the article that apply to most people. 

However, we invite you to reach out to an experienced estate planning attorney in Ft. Worth for a complimentary evaluation to learn what is right and best for your situation. We advise clients across the state of Texas virtually, and have offices in four other states as well.

Here are some of the names or terms you will run into during your research. Some of these are interchangeable, but listed for your awareness:

  • Revocable Trusts
  • Irrevocable Trusts
  • Living Trusts (aka Inter Vivos Trust)
  • Special Needs Trust
  • Asset Protection Trust
  • Revocable & Irrevocable Life Insurance Trusts
  • Annuity Trust
  • Testamentary Trust
  • Charitable Remainder Trust
  • Constructive Trust
  • Discretionary Trust
  • Spendthrift Trust
  • Bypass Trust
  • Inter Vivos Trust
  • Qualified Terminable Interest Property Trust (QTIP)

What Are The Most Common Types of Trusts?

The most commonly discussed types of trusts include the revocable trust, irrevocable trust, special needs trust, and charitable trust. Depending on your family situation and your needs, plus whether or not you will be creating a living trust as a part of your process, you may be inclined to lean one way or another.

However, you shouldn’t choose one type over the other based upon popularity or without understanding the fine print implications. Let’s talk in detail about some of the most common trusts.

Revocable Trusts

A revocable living trust document is created during an individual’s lifetime. (In layman’s terms, a ‘living trust’ means that the document was created while the person is still alive). This is also sometimes referred to as an inter vivos trust, its Latin name.

This type of trust can be modified or altered as much as the grantor deems necessary and includes the ability for the grantor to:

  • Be the initial trustee
  • Transfer the title of the property
  • Remove a property from the trust during his/her lifetime

What are the benefits of revocable trusts?

The benefits of this type of trust are numerous, especially when trying to avoid probate. Because the grantor is able to change assets during his or her lifetime, it ensures that after death the assets and income (proceeds) will not need to be subjected to probate as they are already properly allocated and/or transferred.

What are the downsides of revocable trusts?

A revocable trust can be useful to avoid probate; however, this type of trust does not fully protect an individual’s assets.

Assets transferred to the trust during the individual’s lifetime are accessible to the creditors of the grantor. While there are complications, namely the creditor(s) must petition the courts to access the assets, a revocable living trust does allow for a bit of flexibility.

This can be a good thing or a bad thing, depending on your family situation and/or potential changes in trust asset, property, etc. throughout the grantor’s lifetime.

Irrevocable Trusts

Unlike a revocable trust, an irrevocable trust is generally unable to be changed or revoked after it is created. If a property or asset has been transferred to this type of trust, it is held there indefinitely until the executing terms are reached.

What are the benefits of irrevocable trusts?

Irrevocable trusts are typically set in place for estate planning, estate tax and inheritance management among heirs, plus asset protection from creditors.

This means that the trust is removed from the grantor’s taxable estate (which, in other words, means that the individual is no longer liable for taxes on those specific assets). This can include anything from a business or cash, to a life insurance policy.

What are the downsides to irrevocable trusts?

Many people who opt for an irrevocable trust purchase survivorship life insurance to help with estate planning (especially for larger estates). However, this can have negative consequences if not handled properly, or if the wrong policy riders are selected.

Although irrevocable living trusts have become more flexible over the years, there is still a largely inflexible structure that may or may not work for you and your family.

Special Needs Trusts

A special needs trust is set up for an individual who receives benefits from the government in order to ensure that the beneficiary (the person receiving the benefits of the trust) will continue to receive those government benefits. They are typically set up to manage care for a physically or mentally disabled child, or chronically ill person. The goal of special needs trust is to enable the beneficiary to receive proceeds without disqualifying them from needed public assistance.

The special needs beneficiary would not be able to modify or control the frequency or amount of these benefits, nor revoke the trust altogether.

What are the benefits of special needs trusts?

Parents of a disabled child can use a special needs trust within their general estate planning to support their child in the event of their passing. This type of trust will ensure that government benefits remain intact, regardless of what happens to the parent(s) or the amount of their trust proceeds.

A disabled person can also create a trust for an expected inheritance, creating a special needs trust themselves.

What are the downsides of special needs trusts?

This type of trust is very specific; however, the spectrum of what qualifies as a ‘special need’ is, in fact, very broad.

The special needs trust includes specific provisions and stipulations, and you must make informed decisions while establishing them. Medicaid also raises special considerations.

Mistakes made could make the beneficiary unable to receive government benefits. This is one reason why we advise against the one-sized-fits-all DIY will and trust options proliferating the Internet. 

Asset Protection Trust

An asset protection trust is designed to, as the name suggests, protect the grantor’s assets from future creditors. Oftentimes these trusts are set up outside of the United States, but that does not mean they have to be.

These trusts are typically irrevocable for a period of time so that the grantor is not a beneficiary. Oftentimes, when the trust is terminated, the assets of the trust that were not distributed will be returned to the grantor. At this point, the grantor would regain control over the assets. See this guide for a better understanding and plan for taxes related to inheritance.

What is a Charitable Trust?

A Charitable trust (or charitable lead trust) is a trust that to some extent, benefits the public and/or a charity. Typically created as a part of an estate plan, these trusts can lower taxes (federal estate tax or gift tax) while also helping a cause.

The charitable remainder trust (CRT) that is funded during the time that the grantor is alive can be used for future financial benefits and planning.

In addition, many charities honor donors who are named as beneficiaries, which can provide a unique benefit for this type of trust.


Why do I need a trust?

A trust is an important legal document used in estate planning that helps for the efficient ownership transfer of your assets, avoiding probate, and establishing predefined terms for asset distribution.

Do I need a trust or a will?

It depends upon your situation, and what you wish to accomplish. The key difference between a trust and a will is that a trust helps your heirs avoid the probate process, and simplifies the transfer of title on those assets.

How do I know what type of trust I need?

A trust helps you to protect your assets, as well as distribute them according to your predefined wishes. Some forms can also establish a trust fund.

Our team at Thomas-Walters can help you navigate estate planning and other financial matters related to establishing a trust instrument that is right for you and your goals.

Do I Need A Trust?

A trust is a useful estate-planning tool, and, depending on where you live, can offer protection over how your assets are handled upon your passing. It can also help in planning for tax purposes and as a wealth management tool.

Thomas-Walters PLLC offers estate planning services in Ft. Worth and across multiple states by experienced attorneys who care. We have law office locations in Texas, Missouri, Tennessee, Georgia, and North Carolina, with our main hub across Texas.

If you live in those areas (and even if you do not) feel free to reach out to us with questions you have regarding asset protection, trusts, and other estate planning questions.

Feel free to browse other topics on our blog or contact us.

We are here to help you with all of your estate planning needs.


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