Types of Estate Planning Trusts

Revocable vs. Irrevocable Trusts

The first thing to understand is that trusts can be broken down into two categories: Revocable and Irrevocable Trusts.

Revocable Trusts: A revocable trust is a trust that can be modified by the grantor or beneficiaries after it is created.  You might think of a revocable trust like a flexible container for your assets. You have full flexibility over your assets in trust during your lifetime.

Irrevocable Trusts: An irrevocable trust is a trust that cannot be modified by the grantor or beneficiaries without their consent. An irrevocable trust is like giving your assets a one way ticket to a safe place - there can be many benefits, but you typically can't make significant changes or take the assets back.

Types of Revocable Trusts

Here are some comment types of revocable trusts:

Joint Revocable Trust: A Joint Revocable Living Trust is a legal entity created by a married couple to hold and manage their assets during their lifetimes and distribute those assets to their beneficiaries upon their death. 

Single Revocable Trust: A Single Revocable Living Trust is a legal entity created by an individual, regardless of marital status,  to hold and manage their assets during their lifetimes and distribute those assets to their beneficiaries upon their death. 

Care Trust: A Care trust is a revocable instrument used by an individual for spend down purposes in elderly care planning.

Intentionally Defective Grantor Trust: An IDGT is a tool to freeze certain assets of an individual for estate tax purposes but not for income tax purposes. The grantor pays income taxes on any income from the assets, but the estate does not incur any estate taxes when the grantor dies. It is often used for children or grandchildren who will inherit assets from a sale of an asset.

IRA Trust: An IRA Trust is a trust that one sets up (the “Grantor”) during lifetime to be the named beneficiary of retirement accounts. Because the trust is simply named as the beneficiary, the trust would not be funded with any other assets until the Grantor's passing.

Special Needs Trust: A special needs trust is a legal arrangement that allows a person with disabilities to receive income without reducing their eligibility for public assistance benefits. It can be funded by gifts, inheritance, or life insurance. The trustee oversees the disbursement of assets and the beneficiary's needs. 

Grantor Retained Annuity Trust: A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members. Under these plans, an irrevocable trust is created for a certain period of time.

Types of Irrevocable Trusts

Here are some comment types of irrevocable trusts:

Legacy Trust: Ohio law allows a settlor to make an irrevocable trust for the purpose of protecting assets from creditors all the while naming themselves a discretionary beneficiary. Further, other beneficiaries, such as a spouse, children and charities, can also be named. If this sounds powerful to you, that’s because it is. The main distinction with Ohio Legacy Trusts is that a third party, such as a bank or CPA, must be appointed trustee and valid creditors have a statutory opportunity to bring valid creditor claims before the asset protection kicks in.

Irrevocable Life Insurance Trust: An irrevocable life insurance trust (ILIT) is a trust created during an insured's lifetime that owns and controls a term or permanent life insurance policy or policies.

Deferred Sales Trust: A Deferred Sales Trust is a legal contract between an investor and a third-party trust in which the investor’s property is sold to the trust in exchange for predetermined future payments, called installments, over an agreed upon period of time. Utilizing a Deferred Sales Trust, investors may defer capital gains taxes over time.

Medicaid Protection Trust: Medicaid Asset Protection Trusts (MAPTs) are used to help you or your loved one become eligible for Medicaid Long Term Care by making the assets in your MAPT exempt from Medicaid’s asset limit. So, someone who would not be eligible for Medicaid because the value of their assets is above their state’s asset limit could become eligible by putting excess assets in a MAPT. 

Qualified Income Trust: A Qualified Income Trust (QIT) is a financial product that can help you or your loved one qualify for Medicaid if your monthly income exceeds the income limit. 

Charitable Remainder Trust: A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals. A charitable remainder trust dispenses income to one or more noncharitable beneficiaries for a specified period and then donates the remainder to one or more charitable beneficiaries.

Spousal Lifetime Access Trust: A SLAT is an irrevocable trust, which means it generally can’t be changed once created. It enables one spouse to make a gift that can benefit the other spouse even while the spouse who made the gift is still alive.

Dynasty Trust: Dynasty trust is a long-term trust created to pass wealth from generation to generation without incurring transfer taxes—such as the gift tax, estate tax, or generation-skipping transfer tax(GSTT)—for as long as assets remain in the trust. The dynasty trust's defining characteristic is its duration.