Planning for the future means making choices today that will protect your family tomorrow. While many people think a will is enough, trusts can offer far greater control and protection. By understanding the different types of trusts for estate planning, you can decide which options best match your goals, whether it’s avoiding probate, reducing taxes, or caring for loved ones in unique circumstances.
What Is a Trust?
A trust is a legal arrangement created by the grantor, who transfers assets into the trust. A trustee manages those assets for the benefit of the beneficiaries according to the terms of the trust. Depending on the type of trust, you may be able to avoid probate, protect assets from creditors, reduce taxes, or provide long-term support for loved ones.
General Trust Categories
Revocable (Living) Trusts
A revocable living trust is created during your lifetime and can be changed or revoked at any time. It’s one of the most common estate planning tools because:
- It helps avoid probate, saving time and money.
- You keep control of the assets while you’re alive.
- After you pass, the trust smoothly transfers property to your beneficiaries.
Irrevocable Trusts
An irrevocable trust generally cannot be changed once it’s established. Because you give up ownership of the assets, this type of trust offers:
- Protection from creditors and lawsuits.
- Potential estate tax benefits.
- The ability to shield assets for future generations.
Testamentary Trusts
A testamentary trust is created through your will and only takes effect after you pass away. It can be useful if you want to:
- Delay when beneficiaries receive their inheritance.
- Place conditions on how assets are used (for example, only for education or after reaching a certain age).
Specialized Trusts
Special Needs Trusts
If you have a loved one with a disability, a special needs trust allows you to provide financial support without affecting their eligibility for government benefits. The trustee manages distributions in a way that protects access to programs like SSI or Medicaid.
Charitable Trusts
Charitable trusts let you leave a legacy while also providing potential tax benefits. Common options include:
- Charitable Remainder Trusts (CRTs): Provide income to you or another beneficiary for life, with the remainder going to charity.
- Charitable Lead Trusts (CLTs): Provide income to a charity for a set period before transferring the remaining assets to your family.
Asset Protection Trusts
This type of irrevocable trust is designed to shield assets from creditors or lawsuits. By transferring ownership into the trust, you create a layer of protection while still allowing for structured use of the funds.
Credit Shelter Trusts (Bypass Trusts)
Married couples often use credit shelter trusts to take advantage of both spouses’ estate tax exemptions. This strategy can help minimize or avoid estate taxes when passing wealth to children.
Life Insurance Trusts
A life insurance trust owns your life insurance policy. At your death, the trust controls how the proceeds are distributed and can help reduce estate taxes while ensuring funds are available for your family.
Dynasty Trusts
A dynasty trust is designed to pass wealth down through multiple generations without being reduced by estate taxes each time. Because the assets stay in the trust rather than being transferred outright, they are protected from creditors, lawsuits, and even divorce settlements. This type of trust can last for many years, helping families preserve their legacy and provide long-term financial support to children, grandchildren, and future heirs.
Spendthrift Trusts
If you’re concerned about a beneficiary’s ability to manage money or about creditors reaching their inheritance, a spendthrift trust gives the trustee control over distributions. This ensures assets are protected and used as intended.
Joint Trusts
Married couples often use joint trusts to manage and distribute their combined assets. This approach can simplify estate administration and maximize estate tax exemptions.
Choosing the Right Trusts for Your Estate Plan
With so many types of trusts available, the right choice depends on your goals. You may want to:
- Avoid probate for a smoother transfer of property.
- Reduce estate taxes and preserve more wealth for your family.
- Protect assets from creditors or lawsuits.
- Provide for a child with special needs or a beneficiary who struggles with money management.
- Support a charitable cause while still caring for loved ones.
How OC Wills & Trust Attorneys Can Help
Trusts are not one-size-fits-all. The right structure depends on your assets, family circumstances, and long-term goals. At OC Wills & Trust Attorneys, we will help you understand the types of trusts for estate planning and design a plan tailored to your needs.
Contact us today to schedule a consultation and learn how a trust can protect your future and your loved ones.
Frequently Asked Questions
What type of trust helps avoid probate?
A revocable living trust allows your assets to pass directly to beneficiaries without going through probate.
Do I still need a will if I have a trust?
Yes. A will works alongside your trust to cover assets not included in the trust and to name guardians for minor children.
Which trust is best for reducing estate taxes?
Irrevocable trusts, such as credit shelter trusts or dynasty trusts, are often used to minimize estate taxes.
Can a trust protect assets from creditors?
Yes. Certain irrevocable trusts, including spendthrift and asset protection trusts, can help shield assets from creditors.
