A trust is a legal document that sets up a fiduciary relationship between a trustee and a beneficiary. The trustee is the person who has control over property and manages and uses it for the benefit of the beneficiary according to the terms of the trust. The grantor (a.k.a settlor or trustor) of the trust is theperson who creates the trust and, in most cases, also funds the trust. Funding a trust means putting property into the control of the trust’s trustee, i.e., transferring assets into the trust.

There are at least 40 different types of trust each with different functions. The simplest way to classify trusts is with four broad categories: testamentary, living, revocable, or irrevocable.

Testamentary Trust. A testamentary trust is one that is not funded and is not effective until you have passed away. Testamentary trust provisions are usually found within a last will and testament and are overseen by the Commissioner of Accounts, similar to guardianships and conservatorships.

Living Trust. A living trust is one that goes into effect and is funded while the grantor is living and can be further categorized into revocable or irrevocable.

Revocable Living Trust. A revocable living trust can be altered or terminated at any time duringthe grantor’s lifetime. Typically, these trusts are set up so that the grantor acts as the trustee and beneficiary during the grantor’s lifetime and therefore maintains total control of the trust assets. Whenthe grantor dies, the trust becomes irrevocable for the benefit of the secondary beneficiaries named inthe trust. This type of trust is commonly used to avoid probate, place conditions on the receipt ofinheritance, and minimize tax burden.

Irrevocable Living Trust. An irrevocable living trust generally cannot be changed once it is put into place and can be funded during the grantor’s lifetime or at death. This type of trust is almost always used to minimize tax burden and is used in conjunction with tax planning.

How Do You Determine Which Trust is Right for You? For most people, a revocable living trust handles their needs. It makes it easier for their estate to be managed when they die because it avoids probate and is private. It allows control over the estate even after they have passed away by requiring the trustee to manage the assets until certain conditions have been satisfied. And for those with larger or more complex estates, it allows for provisions to help reduce tax burden.

For people who have larger (gross estate valued a greater than 12.92 million for 2023) or more complex estates, a combination of revocable living trusts and irrevocable living trusts would be more appropriate (see my page on estate planning). For these types of estates, you want a team of qualified professionals including an attorney, an accountant or financial advisor, and perhaps a life insurance agent.

If you are not sure which what type of trust is right for you or need help setting one up, set up a consult with me.