A Guide to the Different Types of Trusts

With an estate plan, you can ensure that your assets will be managed according to your wishes, both during your lifetime and after you pass away. Wills are the centerpiece of many estate plans, but they can be contested and may require a lengthy probate process. That is why many people rely on a trust to transfer assets to their loved ones. However, there are many types of trusts, each serving a different purpose or financial situation.

If you need help arranging your estate, managing your accounts and planning ahead for taxes, a financial advisor can help.

What Is a Trust?

A trust is a legal arrangement between two parties: the trustee and the trustor.

The trustor, also known as the settlor or grantor, is the person who establishes the trust and transfers assets into it.
The trustee is the person or entity responsible for managing trust assets in accordance with the trustor’s wishes.

Often, the trustor will also serve as the trustee, or as one of several trustees, until their death.

Similar to a will, a trust can have beneficiaries. Those beneficiaries may be your spouse, children, other family members or even close friends. You can also name a charitable organization as a trust beneficiary.

Trust beneficiaries receive assets based on the trustee’s instructions. You set these instructions as the trust’s settlor.

There are several types of assets you may transfer to a trust.

Real property, including homes, land or investment real estate
Deposit accounts held at banks and credit unions
Investments, including stocks, bonds and money market accounts
Life insurance policies
Business interests and assets
Collectibles and antiques

Funding a trust occurs when you transfer assets into the trust, thereby placing them under the trustee’s control.

Advantages of Trusts for Estate Planning

Essentially, trusts let you control how and when your assets pass on. They have several benefits for creators and beneficiaries alike.

You may consider a trust if you want to:

Pass on assets while avoiding probate
Create a plan for managing personal or business assets in case of incapacitation
Set aside assets to care for a dependent with a disability
Establish rules or requirements that beneficiaries must meet to receive their inheritance
Preserve assets for the care of minor children if you pass away
Potentially reduce estate taxes and gift taxes

“A trust can be a critical part of any estate plan, especially if you have small children,” says Paul T. Joseph, attorney, certified public accountant (CPA) and founder of Joseph & Joseph Tax & Payroll in Williamston, Michigan.

He adds that they’re also helpful if you have older children who are “not capable of handling and managing the assets contained in the trust.” The stipulations you outline in the trust can help your beneficiaries use it wisely.

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Revocable vs. Irrevocable Trusts

Before diving into specific types of trusts, it helps to understand the two broad categories of trusts: revocable and irrevocable trusts. You can modify the former after it’s established, while the latter generally cannot be freely changed or revoked by the grantor, although modification or termination may be possible in certain circumstances under the trust document or applicable state law.

Here’s how each works.

Revocable Trusts

Revocable trusts, also referred to as revocable living trusts, allow you to maintain control of your assets during your lifetime. You can change or dissolve a revocable trust if necessary. For example, if you go through a divorce or acquire new assets, you may need to update the terms of the trust to reflect the consequences of those events.

A revocable trust offers flexibility, since the transfer of assets and their guidelines don’t become permanent until you pass away. You have the option to name yourself the trustee or co-trustee. You can then choose someone to act as a successor trustee when you die or if you’re otherwise unable to manage the trust.

Assets properly transferred to a revocable living trust generally aren’t subject to probate. This allows for greater privacy than a will.

Irrevocable Trusts

Once you establish an irrevocable trust, you generally give up the ability to revoke it at will. Whether its terms can later be changed depends on the trust and applicable state law.

While less flexible, a trust can be beneficial as a safeguard. “An irrevocable trust would typically be used to create a safe haven for the placement of assets,” Joseph says. “These trusts may protect assets from claims of creditors, beneficiaries or even Medicaid.”

Additionally, certain irrevocable trusts can remove assets from your taxable estate, depending on how the trust is structured and the rights or powers you retain. This may be appealing if you have a large estate and need a way to minimize tax liability on those assets.

The table below summarizes some of the key differences between the two broad categories of trusts.

Feature	Revocable trust	Irrevocable trust
Can the grantor generally revoke it?	Yes	Generally no
Control during the grantor’s lifetime	Grantor can typically retain control	Grantor generally gives up significant control over transferred assets
Probate	Properly funded assets generally avoid probate	Properly funded assets generally avoid probate
Federal estate tax treatment	Assets generally remain in the grantor’s taxable estate	Assets may be excluded from the grantor’s taxable estate depending on the trust’s structure
Income tax treatment	Income is generally reported by the grantor while the trust remains revocable	Depends on whether the trust is treated as a grantor or nongrantor trust for tax purposes

10 Special Types of Trusts

Revocable trusts, also referred to as revocable living trusts, allow you to maintain control of your assets during your lifetime.

Beyond those two broad categories, there are a number of different specialty trusts you can incorporate into your estate plan.

1. Marital Trusts

A marital trust (or an A trust) can be established by one spouse for the benefit of the other.

When the first spouse passes away, the trust assets, along with any income they generate, pass to the surviving spouse. If the trust qualifies for the federal estate tax marital deduction, assets transferred to it generally do not generate federal estate tax at the first spouse’s death.

Assets remaining in the trust may be included in the surviving spouse’s taxable estate when that spouse dies, depending on the trust’s structure.

2. Bypass Trusts

Married couples may also establish a bypass or credit shelter trust, also known as an AB trust. This helps reduce the estate tax impact on their heirs.

When the first spouse dies, this type of trust splits assets into two separate trusts. One trust receives as many assets as the state or federal estate tax exemption limit allows. The remainder may move to a marital trust for the surviving spouse.

When the surviving spouse dies, assets remaining in a properly structured bypass trust generally are not included in the surviving spouse’s taxable estate for federal estate tax purposes.

3. Charitable Trusts

A charitable trust helps you create a legacy of giving within your estate plan.

There are two types of charitable trusts you can establish.

Charitable lead trust. A charitable lead trust directs some assets to charity. The remaining assets go to your beneficiaries after the charitable interest ends.
Charitable remainder trust. A charitable remainder trust allows you to receive income from your assets for a set period. Any remaining assets or income will go to a charity that you designate.

4. Generation-Skipping Trusts

If you’d rather transfer assets to your grandchildren than your children, you can choose a generation-skipping trust.

This type of trust lets you pass assets to your grandchildren, although generation-skipping transfer (GST) tax rules can apply. A properly structured trust that uses the available GST exemption may help keep transferred assets from being subject to transfer tax at each generation. At the same time, you can still allow your children access to any income the assets generate.

5. Grantor Retained Annuity Trust (GRAT)

A grantor retained annuity trust (GRAT) runs for a limited period. It serves as a strategic way to reduce taxes on financial gifts to beneficiaries.

With this trust, you contribute the assets that you want to gift. You then receive a regular annuity payment, based on the original value of the assets. At the end of the term, the remaining funds will transfer to your beneficiaries if you survive the GRAT term. The taxable value of the gift is determined when the GRAT is created, and appreciation beyond the IRS-assumed rate may pass to beneficiaries without additional gift tax.

This type of trust can be a good way to receive payments now for income while leaving part of your assets to your loved ones.

6. Life Insurance Trusts

A life insurance trust is an irrevocable trust that you designate specifically to hold life insurance proceeds.

You designate the trust as the beneficiary of your life insurance policy. Upon your death, the policy proceeds are paid to the trust. The trustee then manages the proceeds on behalf of your beneficiaries.

The advantage of an irrevocable life insurance trust is that proper structuring may keep life insurance proceeds outside the insured’s taxable estate.

7. Special Needs Trusts

A special needs trust can help provide for a special needs dependent, such as a child, sibling or parent.

It does this without compromising their eligibility for government disability benefits. When properly structured and administered, the money in the trust allows them to pay for certain expenses while remaining eligible for means-tested government benefits.

8. Spendthrift Trusts

A spendthrift trust may give you peace of mind if you’re concerned about your heirs frittering away their inheritance. This type of trust allows you to specify when and how trust beneficiaries can access principal trust assets.

The purpose of this is to prevent misuse. For instance, you may restrict beneficiaries to receiving only the income or interest earned by trust assets, not the principal amount of the assets.

9. Testamentary Trusts

A testamentary trust, or will trust, is established through a last will and testament. Once you pass away, the trust is created according to the terms of the will.

The main function is to ensure that beneficiaries can only access trust assets at a predetermined time. People often use testamentary trusts to specify when they leave their assets to their beneficiaries. For example, if you’re a parent, you might have assets you don’t want to leave to a child until they turn 18 or graduate from college.

Once the beneficiary receives the specified assets, the trust terminates.

10. Totten Trusts

A Totten trust, also known as a payable-on-death account, lets you put money into a bank account for a named beneficiary. When you die, the money that you’ve set aside passes to the named beneficiary of the account.

Otherwise, a Totten trust functions similarly to a standard bank account. You can deposit and withdraw funds, or even close the account, at any time. You can also name a new beneficiary if you so choose.

The key thing to keep in mind with a Totten trust is that you name a beneficiary, and when you die, the beneficiary receives the money in the account.

How Trusts Are Taxed

Tax treatment is one of the most important factors in choosing a trust, and it varies significantly depending on the type of trust you establish.

Revocable Trusts

While the grantor is alive, a revocable trust is generally treated as a grantor trust rather than a separate taxpayer for federal income tax purposes. The grantor reports the trust’s taxable items on their personal tax return under the grantor trust rules.

From a tax standpoint, owning assets in a revocable trust is generally similar to owning them in your own name. This changes when the grantor passes away. At that point, the trust typically becomes irrevocable and may need its own tax identification number and annual tax filing.

Irrevocable Trusts

An irrevocable trust’s federal income tax treatment depends on its structure. Some irrevocable trusts are grantor trusts, meaning the grantor remains responsible for reporting some or all of the trust’s taxable income. A nongrantor irrevocable trust is generally treated as a separate taxpayer and may need an Employer Identification Number (EIN) and Form 1041 filing.

For a nongrantor trust, how the income is taxed depends on whether the trust keeps it or distributes it.

Taxable income retained by the trust is generally taxed to the trust.
Certain income distributed to beneficiaries may be deductible by the trust and included in the beneficiaries’ taxable income, subject to the trust income tax rules.

Why the Trust Tax Brackets Matter

Nongrantor trusts that retain taxable income can reach the highest federal income tax bracket far faster than individuals.

For 2026, estates and trusts reach the top ordinary federal income tax rate of 37% when taxable income exceeds $16,000. By comparison, a single individual doesn’t reach that same rate until their income exceeds $640,600.

Because these brackets are compressed, taxable income retained by a nongrantor trust can reach higher marginal rates at much lower income levels than an individual taxpayer. Whether distributing income reduces the overall tax burden depends on the trust terms, the character of the income and the beneficiaries’ tax situations.

2026 Tax Rates for Trusts

Taxable Income	2026 Federal Income Tax
$0 to $3,300	10% of taxable income
Over $3,300 to $11,700	$330 plus 24% of the amount over $3,300
Over $11,700 to $16,000	$2,346 plus 35% of the amount over $11,700
Over $16,000	$3,851 plus 37% of the amount over $16,000

Capital Gains

Trusts can qualify for the preferential federal tax rates on net long-term capital gains and qualified dividends of 0%, 15% or 20%, although the applicable thresholds for estates and trusts are much lower than those for individual filers.

For 2026, the 0% capital gains bracket for estates and trusts extends through $3,300, while the 20% bracket begins above $16,250. By comparison, the 20% bracket for a single filer begins above $545,500. Short-term capital gains are generally taxed at ordinary income tax rates.

Net Investment Income Tax

Estates and trusts may also owe the 3.8% Net Investment Income Tax (NIIT). For a trust or estate, the tax generally applies to the lesser of undistributed net investment income or the excess of adjusted gross income over the dollar amount at which the highest estate-and-trust income tax bracket begins. For 2026, that bracket begins above $16,000 of taxable income.

Net investment income can include interest, dividends, capital gains, rental and royalty income and certain passive business income, subject to the NIIT rules.

Estate and Gift Tax Implications

Transferring assets to an irrevocable trust can constitute a completed gift, but the gift-tax treatment depends on the trust terms and the rights the grantor retains. For 2026, the federal annual gift tax exclusion is $19,000 per recipient for qualifying present-interest gifts. Gifts above that amount do not automatically generate gift tax; they may instead reduce the donor’s available lifetime basic exclusion amount and generally require a gift tax return.

The federal basic exclusion amount is $15 million per individual in 2026. How trust assets are treated for estate and gift tax purposes depends on the trust’s structure.

Assets transferred to certain irrevocable trusts may be excluded from the grantor’s taxable estate if the grantor has relinquished the rights and powers that would cause estate inclusion.
Assets in a revocable trust remain part of your taxable estate because you retain ownership and control during your lifetime.

How This Connects to the Trust Types Above

Understanding the tax treatment of each structure is just as important as understanding how it functions because the tax impact directly affects how much wealth actually reaches your beneficiaries.

Type of Trust	Potential Tax Treatment
Marital trust	May qualify for the marital deduction and defer federal estate tax until the surviving spouse’s death
Bypass trust	May use the first spouse’s estate tax exclusion while keeping qualifying assets outside the surviving spouse’s taxable estate
Charitable remainder trust	Can provide payments to noncharitable beneficiaries before remaining assets pass to charity and may generate a charitable deduction, subject to applicable rules
GRAT	May transfer appreciation above the IRS-assumed rate to beneficiaries with limited additional gift tax if the strategy works as intended
Life insurance trust	May keep life insurance proceeds outside the insured’s taxable estate when properly structured and administered

How to Select the Right Type of Trust

Once you understand the main trust types, the next step is matching the right structure to your goals.

Some people prioritize avoiding probate and keeping their affairs private, which makes a revocable living trust a straightforward choice.
Others want creditor protection or a way to remove assets from their taxable estate, which pushes them toward irrevocable structures.
Families supporting a child with disabilities often need a trust that preserves eligibility for public benefits.
High-net-worth households may focus on tools that manage estate taxes or transfer business interests efficiently.

Your choice may also depend on timing and control. If you want to keep managing assets during your lifetime and make changes as life unfolds, a revocable trust lets you do so. If your priority is asset protection or long-term tax planning, committing property to an irrevocable trust may be more effective. For parents, the decision often depends on how strict they want distribution rules to be and when beneficiaries should receive assets.

Trusts also differ in how they handle liquidity, investment management and administrative work. Some are straightforward to maintain; others require ongoing filings, fiduciary accounting or professional trustees. Understanding these practical demands can help you avoid choosing a structure that is wrong for your family.

Talking through these tradeoffs with an estate attorney or financial advisor can help you choose a trust that matches your goals and assets, as well as the level of oversight you want to maintain.

Bottom Line

A well-crafted estate plan will protect the interests of both you and your beneficiaries. While a will is an essential part of the estate-planning process, a trust can ensure that your assets pass to your loved ones without probate. However, before creating a trust, consider the different types available. This decision will be vital to how well your estate plan holds up over time.

Tips for Estate Planning

If you’re unsure whether a trust belongs in your estate plan, you don’t have to go it alone. Most financial advisors have the resources to help you put together an estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Estate taxes can be hefty, but you can maximize inheritance for your family by gifting portions of your estate in advance to heirs, or even setting up a trust. Some inherited assets can also have tax implications, so read more about inheritance taxes and exemptions now.