There are many different types of trusts. They are often designed to serve specific purposes, which dictate the form and basic provisions of the Trust. Many Trusts establish "sub-Trusts", as well. While Trusts can be structured to handle different situations, it is important to be knowledgeable and careful in their design to ensure they work as designed.
The two basic major classifications of trusts are Living Trusts vs. Testamentary Trusts and Revocable vs. Irrevocable Trusts. Another way to classify trusts is by their purpose.
Estate Planning and Common Trust Arrangements
Living Trusts (Inter Vivos Trust) or Revocable Living Trusts: avoid probate and allow the Grantor to name a Successor Trustee to manage Trust assets if the Grantor becomes incapacitated.
Irrevocable Life Insurance Trusts (ILIT): keep life insurance proceeds out of the Grantor's estate and free of estate tax, while providing benefits to the Grantor's heirs. When a life insurance policy is held by the Trust, the cash value and proceeds are also protected from potential lawsuits and claims. These types of trusts are very popular and effective estate planning and asset protection strategies.
A/B Trusts: trusts that split into two separate and distinct trusts upon the death of the Grantor. They can be created as Living Trusts or Testamentary Trusts, since the provisions do not take effect until after the Grantor's death.
Asset Protection Trusts: Irrevocable Living Trusts designed to keep Trust assets from claims of future creditors of the Trust Beneficiaries, while providing the Trustee with the ability and discretion to benefit the Trust Beneficiaries. There are two types of Asset Protection Trusts - a Domestic Asset Protection Trust (Onshore Trust, DAPT) and a Foreign Asset Protection Trust (Offshore Trust), established in foreign countries. They are both also referred to as Self-Settled Spendthrift Trusts.
Spendthrift Trusts: revocable or irrevocable, living or testamentary trusts established for a Beneficiary which does not allow the Beneficiary to sell or pledge away his or her interests in the Trust. They are beyond the reach of the Beneficiary's creditors, until the Trust assets are distributed out of the Trust and ownership is transferred to the Beneficiary.
Special Needs Trusts (Supplemental Needs Trust - SNT): revocable or irrevocable, living or testamentary trusts that provide certain benefits to individuals who, due to age or disability, have special needs and qualify for certain government or charitable benefits. They are designed to continue these benefits without reducing or eliminating available government or charitable benefits. Often includes a trigger clause which terminates the Trust in the event that it could be used to make the Beneficiary ineligible for government benefits.
Intentionally Defective Grantor Trusts (IDGT) or Intentionally Defective Irrevocable Trusts (IDIT): keeps Trust assets out of the Grantor's estate while allowing the Grantor to be treated as the owner of the assets and income for income tax purposes only.
Marital Trusts ("A" Trusts): similar to a QTIP Trust, usually created by Will upon Grantor's death when Grantor is the first spouse to die. They are designed to provide income and principal to a surviving spouse for life, then the remainder to children. They are designed to qualify for the estate tax unlimited marital deduction, so that Trust assets are not subject to estate tax until the surviving spouse dies. The difference from a QTIP Trust is that is does not restrict the spouse's access as much as possible while still qualifying for the marital deduction.
Credit Shelter Trusts ("B" Trusts), Family Trusts, Exemption Trusts, By-Pass Trusts: usually created by Will upon Grantor's death, but can be created under a Living Trust as well. If the Grantor is the first spouse to die, then the Trust provides income to a surviving spouse for life. When there is no surviving spouse, the Trust assets pass to children. They are generally used by married couples with large estates to allow one spouse to leave money for the other, while limiting the amount of Federal Estate tax that would be payable on the death of the second spouse.
Spousal Lifetime Access Trusts (SLAT): provide income to Grantor's spouse, both during the Grantor's lifetime and after the Grantor's death, then passes assets to children. The Trust is funded with gifts from the Grantor and the Trust is not subject to estate tax when the surviving spouse dies.
Charitable Remainder Trusts (CRT), Charitable Remainder Annuity Trusts (CRAT) and Charitable Remainder Unitrusts (CRUT): referred to as Charitable Split-Interest Trusts because they have both charitable and non-charitable Beneficiaries. They provide a Grantor, spouse or others with income, and then pass the remainder interest to charity. Usually funded during life, but may be funded upon Grantor's death. The income interest may continue for the life of the income Beneficiaries or for a specified number of years. There are many different types of Charitable Trusts; typically established to lower or avoid imposition of Federal (and some states') estate and gift taxes.
Grantor Retained Annuity Trusts (GRAT), Grantor Retained Income Trusts (GRIT), Qualified Personal Residence Trusts (QPRT): irrevocable trusts that provide a Grantor, spouse or others with income, then passes the remainder interest to others. It is funded during the Grantor's life. The income interest may continue for the life of the Beneficiaries or for a specified number of years. A QPRT is designed to reduce the value of a personal residence for federal estate tax purposes upon the death of the Grantor, and allows the Grantor to transfer his/her home to the Trust but remain living in the home. GRITs and QPRTs are always Irrevocable Living Trusts.
Employer-sponsored Retirement Plan Trusts for Qualified Plans (Pension Trusts) and Non-qualified Plans (Rabbi Trusts): keeps Trust assets out of common funds of the employer and available for employee retirement benefits. Assets in a Pension Trust are beyond the reach of creditors, while assets in a Rabbi Trust are subject to claims of the employer's creditors.
Qualified Terminable Interest Property Trusts (QTIP): revocable or irrevocable, living or testamentary Trusts that do not become effective until after the Grantor's death. They are a type of Marital Trust designed for use by a Grantor when a second marriage is involved. It allows the Grantor to transfer property in Trust for his/her surviving spouse estate-tax free by virtue of the unlimited marital deduction, even though the surviving spouse is not given the right to determine the Beneficiaries of the property upon his/her subsequent death. This allows the Grantor to provide for the surviving spouse, but insures that the property is ultimately distributed to his/her children upon the surviving spouse's death.
Constructive Trusts: trusts imposed by law as an equitable remedy, as a result of fraud brought upon a former legal title holder. This generally occurs when a wrongdoer has acquired legal title to some property but cannot be allowed to benefit from it. A court can then order that the wrongdoer is deemed to hold the property in Trust for the victim of the wrong.
Express Trusts: trusts specifically created by the Grantor under a Trust agreement or Declaration of Trust.
Implied Trusts: established by courts when it is determined by particular facts and circumstances that even though there was no formal Declaration of Trust, there was an intention on the part of the property owner that the property be used for a particular purpose or to go to a particular person.
Resulting Trusts: arise from, created by operation of law, when the legal title to property is transferred, but the beneficial interest is to be enjoyed by someone other than the person who got the legal title.
Totten Trusts: informal, revocable trusts created during the lifetime of the Grantor by depositing money into an account at a financial institution in his/her name as the Trustee for another. The gift is not completed until the Grantor's death, or an unequivocal act reflecting the gift during the Grantor's lifetime.
Crummey Trusts: irrevocable life insurance Trusts with certain provisions that allow gifts to the Trust to qualify for the annual gift tax exclusion. They give the Beneficiaries the right to withdraw a gift for a pre-determined period of time in order to qualify for the annual gift tax exclusion.
Dynasty Trusts: revocable or irrevocable, living or testamentary Trusts designed to last beyond the time permitted by the Rule Against Perpetuities, which is generally the lifetime of any Beneficiary living at the time of the creation of the trust, plus 21 years. They are often designed to last forever, with generation after generation receiving distributions from the Trust.
Generation Skipping Trusts: revocable or irrevocable, living or testamentary trusts specifically designed to hold the amount of property that is exempt from the generation-skipping tax under the federal estate tax laws.
Limited Term Trusts: these last for a specified term with the Trust property returned to the Grantor at the end of the time period. Designed to protect the Grantor's assets from any type of lawsuit or claim, and plans for the funds to be available for later retirement.
Types of trusts and Living Trusts - HG.org. (n.d.-e). https://www.hg.org/types-of-trusts.html