{"id":12316,"date":"2021-10-22T14:12:36","date_gmt":"2021-10-22T19:12:36","guid":{"rendered":"https:\/\/legaltalktexas.hammerle.com\/?p=12316"},"modified":"2025-06-18T16:55:50","modified_gmt":"2025-06-18T21:55:50","slug":"different-types-of-trusts-in-estate-planning","status":"publish","type":"post","link":"https:\/\/hammerle.com\/legaltalk\/wills-trusts\/different-types-of-trusts-in-estate-planning\/","title":{"rendered":"Different Types of Trusts in Estate Planning"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">A <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/elder-law\/trusts-in-texas\/\"><span style=\"font-weight: 400;\">trust<\/span><\/a><span style=\"font-weight: 400;\"> is simply a contract between a \u201ctrustee,\u201d who manages the trust, and a \u201cgrantor,\u201d who establishes the trust. It is set up for the benefit of the \u201c<\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/family-law\/marriage\/4-common-mistakes-beneficiary-designations\/\"><span style=\"font-weight: 400;\">beneficiaries<\/span><\/a><span style=\"font-weight: 400;\">.\u201d The trust document sets out the terms.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A trust is often considered the <\/span><a href=\"https:\/\/hammerle.com\/practice-areas\/estate-planning-probate\/estate-planning\/\"><span style=\"font-weight: 400;\">foundation of estate planning<\/span><\/a><span style=\"font-weight: 400;\">. While a trust is frequently characterized as a method to <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/estate-planning-and-probate\/new-ways-to-avoid-probate\/\"><span style=\"font-weight: 400;\">avoid probate<\/span><\/a><span style=\"font-weight: 400;\">, it has many other uses. For example, it can be used to help manage a person\u2019s finances if they later become incapacitated. A trust can provide a legacy for the next generation, while also protecting assets for a beneficiary from creditors and <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/family-law\/what-are-considered-assets-in-a-divorce\/\"><span style=\"font-weight: 400;\">divorcing spouses<\/span><\/a><span style=\"font-weight: 400;\">. It can also be used to reduce, if not eliminate, estate taxes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some trusts are formed with a specific goal in mind and must contain specific language in order to meet that goal. These types of trusts fall into certain recognized categories. Trusts first are classified by whether they are <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/elder-law\/revocable-living-trusts\/\"><span style=\"font-weight: 400;\">revocable or irrevocable<\/span><\/a><span style=\"font-weight: 400;\">. They then are divided into more specialized categories.\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Revocable Living Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A simple revocable trust is the most common type of trust. It is sometimes called a living trust. A living trust is favored because, while it provides a structure to hold assets, the terms can be easily changed, or even revoked, by the grantor during his or her lifetime. The grantor can serve as the initial trustee and the initial beneficiary.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Irrevocable Living Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">By way of contrast, an irrevocable trust cannot be revoked by the grantor after it is set up. Once an asset is moved into an irrevocable trust, it can only be invested and distributed according to the terms of the trust. The grantor cannot usually serve as a trustee and, depending on the purpose of the irrevocable trust, may not be able to be a beneficiary.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Life Insurance Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">There are different types of irrevocable trusts. One type is a Life Insurance Trust, commonly called an ILIT. This trust is funded with a life insurance policy, which is paid out upon the death of the insured person. The primary purpose of an ILIT is to take the policy proceeds out of the taxable estate of the owner of the life insurance and preserve the funds intact for the beneficiaries.\u00a0 Another purpose is to provide a more elaborate vehicle for payment of the policy to the beneficiaries \u2013 the trustee can hold the life insurance proceeds within the policy and pay them out over time or under a defined standard (such as for the health, education, maintenance and support of the beneficiary). ILITS have some special rules about funding payments of the insurance premiums, and they also carry a look-back period for estate taxes.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Special Needs Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/elder-law\/special-needs-trust-for-disabled-adults-and-kids\/\"><span style=\"font-weight: 400;\">Special Needs Trust<\/span><\/a><span style=\"font-weight: 400;\"> can be either revocable or irrevocable. Its purpose is to provide funds for a beneficiary with special needs without disqualifying that beneficiary from government programs. These are often classified as either first- party or third-party trusts. A first-party Special Needs Trust is where the special needs beneficiary sets up the trust and funds it with his or her own money. A third-party Special Needs Trust is where the trust is set up by someone else (usually a parent or grandparent) and the trust is funded with that person\u2019s funds. The rules governing each type of trust vary greatly.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An Educational Trust can be either revocable or irrevocable. This type of trust is set up for the specific purpose of providing funds for the education of the beneficiary. It is often funded at a grantor\u2019s death with life insurance proceeds or a specific account.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Bypass Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A Bypass Trust is also known as a Family Trust. It is usually formed with some assets from a revocable trust when one of the grantors dies. A Bypass Trust is funded with the grantor\u2019s <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/wills-trusts-estate-planning\/contesting-a-will-in-texas\/\"><span style=\"font-weight: 400;\">separate property and share of community property<\/span><\/a><span style=\"font-weight: 400;\">. It is irrevocable. The purpose of the Bypass Trust is to keep the grantor\u2019s assets out of the taxable estate of the surviving grantor, and to set up the beneficiary designations and terms of distribution so they cannot later be changed.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Pet Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A Pet Trust can be revocable or irrevocable. The purpose is to provide for the care of a person\u2019s pets when that person dies. The <\/span><a href=\"https:\/\/hammerle.com\/legaltalk\/legal-talk\/pet-trusts-in-texas\/\"><span style=\"font-weight: 400;\">Pet Trust will name a trustee<\/span><\/a><span style=\"font-weight: 400;\"> who will oversee care of the pet. It will contain sufficient assets to care for the pet for the remainder of that pet\u2019s life.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Miller Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A Miller Trust is an irrevocable trust that can help a person qualify for the government program Medicaid. A Miller Trust is also known as a qualified income trust, or QIT. It is used when a person\u2019s income is over the limit allowed by Medicaid. The person\u2019s excess income is deposited into the Miller Trust.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">IRA Trust<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">An IRA Trust is an irrevocable trust that holds the proceeds of a person\u2019s IRA after that person dies. It is usually set up to obtain the maximum stretch in the IRA payout for the beneficiaries. These types of trusts are further categorized as accumulation (the IRA distribution is kept in the trust for further investment and distribution purposes) or conduit (the IRA distribution just flows through the trust to be immediately distributed to the beneficiaries).<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Hammerle Morris Can Help With Your Estate Planning Needs<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The <\/span><a href=\"https:\/\/hammerle.com\/lewisville-attorney\/\"><span style=\"font-weight: 400;\">attorneys at Hammerle Morris can help develop a trust plan<\/span><\/a><span style=\"font-weight: 400;\"> that is right for you. Schedule a consultation today to speak with an attorney about your estate planning and trust needs.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A trust is simply a contract between a \u201ctrustee,\u201d who manages the trust, and a \u201cgrantor,\u201d who establishes the trust. It is set up for the benefit of the \u201cbeneficiaries.\u201d The trust document sets out the terms.\u00a0 A trust is often considered the foundation of estate planning. While a trust is frequently characterized as a [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":12322,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[42],"tags":[685,905],"class_list":{"0":"post-12316","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-wills-trusts","8":"tag-estate-planning","9":"tag-trusts"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.6 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Different Types of Trusts in Estate Planning - Hammerle Morris Law Firm<\/title>\n<meta name=\"description\" content=\"A trust is simply a contract between a \u201ctrustee,\u201d who manages the trust, and a \u201cgrantor,\u201d who establishes the trust.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/hammerle.com\/legaltalk\/wills-trusts\/different-types-of-trusts-in-estate-planning\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Different Types of Trusts in Estate Planning - 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