People who are deciding how to handle their estates may have heard of trusts but may be uncertain of exactly what trusts do. Because their uses are diverse, there are also many different types of trusts available. The type of trust a person may choose to establish will largely depend on the goals they are seeking to accomplish.
Trusts may be inter-vivos, which mean they are set up to operate during the grantor's lifetime, or testamentary, which means they are established in the testator's will and take effect upon their death. Trusts may also be revocable or irrevocable. Revocable trusts are those that can be amended or revoked at any time by the grantor. The grantor of a revocable trust maintains control over the assets contained within the trust. Irrevocable trusts may not be changed, and the assets are owned by the trust itself. Changes are only allowed by the agreement of the trust beneficiaries. Irrevocable trusts are not subject to estate taxes, while revocable ones are.
Qualified personal residence trusts are used in order to remove the value of a residence or vacation property from the estate. Generation-skipping trusts allow grantors to choose to pass assets to beneficiaries who are at least two generations younger. When a person is married a second time and wants to ensure their assets are passed to their children from the first marriage instead of their spouse's heirs, a qualified terminable property interest trust can ensure that the property will pass to the intended beneficiaries.
Trusts can be very effective tools depending on the goals of the individual. People may wish to discuss their goals with their estate planning attorney in order to determine if a trust is advisable. An attorney may then be able to help select a trust most likely to meet the individual's needs.
Source: CNN Money, "What kinds of trusts are there?", December 05, 2014