There are many different types of trusts that a person may establish. The trusts may be divided into two broad categories. Revocable trusts allow people who set them up to control the trust assets. These trusts can be amended or terminated at any time. Irrevocable trusts instead own the assets and are able to avoid estate taxes. Changes cannot be made to irrevocable trusts without the intended beneficiaries' consent to the proposed changes.
More complicated types of trusts exist within the two broad categories. In a credit shelter trust, the testator writes a will that grants property up to the amount of the estate tax exemption to the trust account. The remainder of the estate can then be passed in other provisions of the will to the testator's spouse free of tax. Even if the trust value grows, it remains free of estate taxes.
Some trusts are generation skipping, meaning assets can be passed tax-free to beneficiaries that are at least two generations younger than the testator. These types of trusts are normally used to pass assets to grandchildren. Some trusts are designed to contain the home or a vacation property in order to remove its value from the estate. These trusts are called qualified personal residence trusts. Irrevocable life insurance trusts remove the value of life insurance proceeds from the estate, while qualified terminable interest property trusts can allow the grantor to pass assets to specified relatives upon the death of the grantor's spouse.
When a person is planning how to handle their assets, especially when their estate is a high-asset one or is extremely complex, a trust may be a valuable tool to consider. People may wish to speak with their estate planning attorney about their estate goals and the types of trusts that may best help to meet their goals.
Source: CNN Money, "What kinds of trusts are there?", December 05, 2014