What are the different types of trusts?

Contents

Our guide to telling the many different types of trusts apart

by
Nicole Dieker

December 14, 2021 |
Money

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.

“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.

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html

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