While a Revocable Living Trust is surely the most common type of trust and makes the most sense for the highest number of people, there are several other types of trusts that may be useful or beneficial. Depending on individual circumstances and family and financial goals, the following types of trusts may be considered:
I. Testamentary Trust
A Testamentary Trust is a trust created in a manner so as to come into existence only at the time of your death. The terms of a testamentary trust would typically be included in a will and the trust never exists while you are living. Testamentary trusts can also be an additional extension of part of an already-existing revocable living trust.
A Testamentary Trust is often advisable if you are in any of the following circumstances:
(i) you have young or immature beneficiaries
(ii) you have older or incompetent beneficiaries
(iii) you have disabled beneficiaries
(iv) you want to maintain some control over “gifted” assets
II. “A-B” Marital Deduction Trust
An “A-B” Marital Deduction Trust is created to minimize gift and estate taxes for married couples. This type of trust is typically an extension of the standard revocable living trust. A Marital Deduction Trust can be created as one trust for two married individuals or can be the combination of two separate trusts—one for each spouse. This type of trust maximizes certain estate tax deductions for married couples.
You should consider a Marital Deduction Trust if you are married and have significant assets.
III. Discretionary Special Needs Trust
A Discretionary Special Needs Trust is a trust created for the benefit of an individual who is receiving state or federal government benefits, or who may be eligible to do so in the future. Property can be held and used for such individual’s benefit while not negatively affecting their eligibility for government benefits.
IV. Irrevocable Trust for a Minor
An Irrevocable Trust for a Minor is a trust funded for a minor in a manner that qualifies the donor for the annual gift tax exclusion. The trust/gift cannot be revoked and must meet several IRS guidelines. The key benefit of this type of trust is to allow for continued control over the gift by the donor (as opposed to an outright gift), while ensuring that the gift still qualifies for annual gift tax exclusion.
V. Revocable Life Insurance Trust
A Revocable Life Insurance Trust is a trust that is created to be the owner of a life insurance policy and the beneficiary of the policy’s eventual insurance proceeds. The trust can be revoked at any time. The primary benefits of this type of trust are (i) allowing for control/supervision of life insurance proceeds, (ii) allowing for divided distribution of life insurance proceeds among multiple recipients, (iii) avoiding probate, and (iv) remaining flexible and revocable.
VI. Irrevocable Life Insurance Trust
An Irrevocable Life Insurance Trust is a trust established to be the owner of a life insurance policy and the beneficiary of the policy’s eventual insurance proceeds. This type of trust cannot be revoked and the creator of the trust cannot serve as the trustee of the trust. The major advantages are similar to a Revocable Life Insurance Trust, except this type of trust is less flexible, instead providing avoidance of estate taxation on the life insurance proceeds.