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A trust is an important part of the estate planning and wealth management process. It can help shelter your assets from taxes or lawsuits and provide income to your family if after you pass away. However, it isn’t always easy to choose the right type of trust for your needs.
To help make the estate planning process simpler, we break down some of the most common types of trust funds in this guide.
A trust in estate planning is a legal document used to establish a “container” that holds assets, like money or property that an estate planning lawyer can draw up. The trust’s assets are then managed by you (a.k.a, the grantor or trustor) or a trustee, another person or organization tasked with overseeing your trust and trust administration until its assets are transferred to your beneficiaries.
You can choose from several different types of trusts that benefit spouses, family members, and charitable organizations; you can even create a pet trust. You can also establish specific terms for your trust. For instance, you may name your grandchild as the heir of your vintage sports car — but only after they graduate from college.
Financial trusts aren’t a mandatory part of estate planning services. However, they may help protect your assets and loved ones. They can also streamline the property distribution process after your death, keeping your assets private and out of court.1
Establishing a trust account makes it easier to transfer belongings to the people or organizations you choose, while reducing the tax burden they might face. Some trusts also shield your assets from probate, lawsuits, and the IRS.1
And if you’re thinking about setting up a trust, consider purchasing a life insurance policy to ensure your assets go to your loved ones. Life insurance benefits are typically disbursed tax-free, and your beneficiary can use the proceeds to pay estate taxes or other debts your estate may owe.
You also have the option to set up certain trusts using life insurance. For example, if you have a loved one with special needs, you might not have enough money to fund a special needs trust on your own. With life insurance, you can apply for a death benefit that will provide financial security for your beneficiary, such as your spouse, children, or a charitable organization.
Learning about your options can help you plan for your loved ones’ future. Let's take a look at some of the most common types of trusts to consider during the estate planning process.
The main types of trusts
You can set up many different types of trusts, but some common types of trusts for your estate are:1,2
A revocable trust allows the grantor — the person who created the trust — to change or revoke the trust at any point during their lifetime. It is a common component of estate planning strategies. Revocable trusts are also known as living trusts or revocable living trusts.2
These trusts are set up by you while you’re still alive, and you take on the trustee responsibilities. Often, the assets in a revocable living trust transfer to your beneficiaries after you pass away.
Pros of revocable trusts: Besides the flexibility to change or revoke the trust, a revocable living trust can help you avoid probate, which is the process a court takes to finalize your legal and financial matters after your death. Probate can be lengthy and expensive for your loved ones. Estates in probate also become a matter of public record.2
Cons of revocable trusts: A downside of a revocable trust is that the assets held in one are considered personal assets to creditors and for estate tax purposes. This means if you owe money when you pass away, creditors can access to your trust’s assets to pay off those debts. You may also owe taxes on your estate if your trust assets meet the minimum value requirements.2
Once you create an irrevocable trust you cannot change or terminate it. You can establish an irrevocable trust during the estate planning process. Most trusts can be irrevocable.1
An irrevocable trust offers your assets the most protection from creditors and lawsuits.1
Assets in an irrevocable trust aren’t considered personal property. This means they're not included when the IRS values your estate to determine if any estate tax is owed. And, if you file bankruptcy or default on a debt, assets in an irrevocable trust won’t be included in bankruptcy or other court proceedings.1
A revocable trust becomes irrevocable upon your death. This allows you to change the trust’s terms or update your beneficiaries while you’re alive, guaranteeing your wishes are carried out. However, it doesn’t prevent your estate from entering probate.1
Living trusts and revocable trusts are often used interchangeably, which can cause some confusion. But a living trust is simply another name for a revocable trust.
Like a revocable trust, a living trust is one you set up and manage during your lifetime. You can update or dissolve a living trust at any time. After you pass, the trust assets in a living trust are transferred to your beneficiaries.
If you have a disabled loved one(s), a special needs trust can provide them with income after your death without disqualifying them from government benefits, like Social Security Disability Income. The trust can provide for day-to-day living and other expenses for the beneficiary, and the beneficiary can still receive government benefits.1
Keep in mind that your special needs beneficiary doesn’t control the funds. Instead, a trustee — or someone you choose to manage the trust — does.
This type of trust (a.k.a DAPT for “domestic asset protection trust”) keeps your assets safe from creditors, and are mainly used by individuals who are in high-risk jobs, like doctors or real estate developers, or those with high net worth.3 If you file bankruptcy or default on a debt, assets in this trust won’t be included in bankruptcy or other court proceedings.
Asset protection trusts can be expensive to establish. However, they provide more security than any other type of trust — except for an irrevocable trust. Asset protection trusts can be used in place of a prenuptial agreement.3
Not all states allow asset protection trusts, so be sure to check with a lawyer to see what your options are.3 In addition to protecting assets from creditors, in some instances, the trust can help reduce or avoid state income taxes. It can also be set up so that the assets in the trust can still be used by the grantor to their benefit.3
There are also foreign or offshore asset protection trusts (FAPTs), which cost more to create. Creditors may have a harder time because they cannot collect from outside the U.S. automatically. The process for collection would be more complicated, requiring them to go through the local legal channels.4
There are several types of trusts that pertain to families in particular. They are:
Family trust: A family trust holds and manages assets for members of a family, often multi-generational. It can help define who inherits what, and provide support and income to beneficiaries over many years.1
Spousal trust: A spousal trust, also referred to as a marital, bypass, credit shelter, or qualified terminable interest trust (QTIP), is created by one spouse to provide for income a surviving spouse, and dictates how assets go to beneficiaries when the surviving spouse passes.5
Generation-skipping trust: This type of trust is created to benefit the next generation of a family, say grandkids, while protecting assets from taxes during a wealth transfer to the next immediate generation (say, one’s kids).6
Some other types of trusts you may hear about are:
Charitable trust: If you want to donate money in a tax-efficient manner when you pass away, a charitable trust may be a good option. Assets included in the trust aren’t considered personal assets, so the charity will not have to pay an estate tax.
You can typically choose from two types of charitable trusts: charitable lead trusts and charitable remainder trusts (CRT).
Charitable lead trusts allow you to set aside specific assets for one or more organizations. Then, you can distribute the rest of your property to your beneficiaries — like your spouse or children. Charitable lead trusts are irrevocable, which means you can’t change the terms once they’re established.
A charitable remainder trust is an irrevocable trust you can use as a source of income until your death. When you establish a CRT, you place assets into the trust, such as money, real estate, or stocks.
You can draw income from this funding source for the rest of your life. When you pass away, the remaining assets in your CRT will be distributed to one or more charitable organizations.
Testamentary trust: A testamentary trust is one you create through your will. Also known as a will trust or a trust under will, testamentary trusts don’t activate until you pass away. Your last will and testament includes instructions on how your trust is created, managed, and distributed. It also ensures your beneficiaries only receive their inheritance at a certain time.
It’s important to understand that assets in a testamentary trust always go through the probate process. As a result, your estate becomes a matter of public record, which means your beneficiaries will lose some of the privacy that comes with other types of trusts.
Qualified personal residence trust: This type of trust allows you to transfer your primary or secondary home to your beneficiaries while living in the home, for a set period of time. It essentially removes the value of the property from your estate, for tax purposes, but can be complicated as you will be renting the home from the trust for the designated period of time, and the tax treatment of the property can change if you die before the term is up.7
Spendthrift trust: Spendthrift trusts distribute assets to your beneficiaries over time, rather than in a lump sum. Your beneficiaries receive payouts over a specified period, which can help ensure your savings last.
The funds in a spendthrift trust aren’t considered your beneficiary’s personal assets until they’re disbursed. This means creditors can’t access money in the trust in the case of loan default or bankruptcy.
With so many different types of trusts for estate planning you can choose from, it can be confusing which are best for your situation. Here’s a quick look at some of the features of four types of trusts.1,3,4 Be sure to consult with your estate planning attorney for legal advice on which trusts are best for you and your family.
| Types Of Trust | What it’s for | Whom it’s best for | Other features to be aware of |
| Revocable trust | The most common type of trust for estate planning, a revocable trust allows you, the grantor, full control of the trust administration, and you may revoke it at any time. If you become incapacitated, the successor trustee can manage your assets without court approval. It allows the assets in the trust to pass directly to your beneficiaries when you die, without going through probate. | Anyone who wants to keep the division of their assets private and out of court | You pay taxes on the assets in the trust as you normally would. |
| Irrevocable trust | Like a revocable trust, an irrevocable trust allows your beneficiaries to avoid probate. However, irrevocable trusts cannot be revoked once they are funded, and the trustee, not you, has control of the trust. Because the trust owns the assets, it can help reduce or even eliminate some estate taxes that your beneficiaries may have to pay. | Anyone who wants to keep the division of their assets private and out of court, and who wants to potentially minimize their taxes | The trust may also protect your assets from creditors. |
| Asset protection trust | These trusts protect your assets from creditors. You can open an asset protection trust in the U.S., or abroad. | High net worth individuals or families, or those in high-risk jobs, like doctors or real estate developers | Not all states offer asset protection trusts, so you’ll need to check what the requirements are to establish an out-of-state trust. Offshore asset protection trusts are more expensive to create and to maintain. |
| Special needs trust | This type of trust provides financial support for someone with special needs while allowing them to get government aid, like Medicare or Social Security Disability Income. | Anyone who has a loved one with special needs | The designated trustee has control of the trust. |
How MetLife can help with trusts and estate planning
Establishing a trust as part of your estate plan helps protect your assets and prevent your loved ones from undergoing the probate court process. However, it’s essential to select the right type of trust — and set up a trust document with the help of an experienced estate planning attorney.
MetLife Legal Plans can put you in touch with an estate planning lawyer who can help you decide on, and create, the best type of trust for you and your family. Contact your human resources representative to learn more about your company’s legal services benefit plan. A legal services benefit, or legal insurance, gives you access to a network of experienced attorneys at an affordable monthly rate.
With legal insurance, you may be able to save on estate planning costs when you hire an estate planning attorney. Most importantly, you can move forward with confidence, knowing you’ve prepared for the future and protected what matters most.
There are many types of trusts you can choose from for your estate planning needs. Which is best for you and your family depends on your goals, for both when you are alive and upon your death.
While revocable trusts are the most popular type of trust for estate planning, many other types of trusts — including irrevocable trusts, testamentary trusts, asset protection trusts, and special needs trusts — may also make sense.
Be sure to consult with an estate planning attorney, who can help you with personalized estate planning that includes creating trusts. If you are a MetLife Legal Plans member, your estate planning is likely covered under your plan; you can find a participating estate planning attorney near you.
A trustee manages the assets that are in the trust according to the terms in the trust. They have a fiduciary responsibility to act in the best interest of the beneficiaries.8 If you create a revocable trust, you are both the grantor and the trustee, though you can name a successor trustee in case you become unable to manage the trust yourself.1
A living trust is created while you are alive, and do not go through probate or the court. A testamentary trust is a part of a will, and goes through the regular probate process.2
First think about what your reasons are for setting up a trust. Do you want your living trust to be revocable or irrevocable? Work with an estate attorney to determine which may be best for your situation. Your lawyer will then work with you to write your trust document. Once the trust document has been executed — it’s been signed by you and notarized — then you sign over the assets you want to the trust. You will need to retitle deeds and financial accounts so that they are in the name of the trust, rather than yourself.1
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