What if you want to leave an inheritance, but worry creditors or taxes will chip away at it? Or if you want your loved ones to be cared for soon, but probate delays transfer of your assets?
The right trust can protect your assets, streamline distribution, and reduce financial risks. But trusts can be complex; professional help ensures they're set up properly and legally valid.
Understanding the many different types of trusts and how they work can help you decide if one suits your estate plan.
What Are Trusts and How Can They Help You?
A trust is a legal arrangement where a "trustee" (a person or an institution, such as a bank or law firm) manages property for "beneficiaries," such as relatives, pets, or entities. The trust holds assets for distribution during the creator's life (in case of incapacity) or after their death.
Unlike a will, a trust may help avoid probate, and without court involvement, a trust offers more privacy. If you set up a trust, you should still create a will, but it would likely be a "pour-over" will, which moves (pours) your assets into the trust.
Several different types of trusts give you control over how and when your assets will be distributed. Other things trusts can do include:
- Protect assets from creditors
- Provide an income in case of disability, illness, or death
- Minimize estate, income, or gift taxes.
Which Types of Trusts Match Your Estate Planning Goals?
Trusts fall under two main categories: testamentary and "inter vivos."
The type of trust you choose depends on your priorities. Do you want children to inherit gradually instead of all at once? A testamentary trust can ensure that happens. Want to control your assets during your lifetime? An inter vivos trust can allow you to do that.
- Testamentary: This type of trust is created by your will (that is, your "Last Will and Testament") and takes effect upon your death once probate is complete. It manages assets for beneficiaries, often minors, or disperses an inheritance over time.
- Inter vivos: These trusts start and exist during your lifetime, and the assets pass through the trust to beneficiaries upon your death (or gradually thereafter). They can be revocable or irrevocable:
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- Revocable Trust: You can choose to transfer assets to it during your lifetime or after your death. The creator keeps control over the trust and may amend, revoke, or terminate it at any time. This means you, the donor, can continue to benefit from the trust before you pass away, even if you withdraw funds or change the terms.
- Irrevocable Trust: This trust cannot be changed or revoked. As directed, any assets it holds may only be distributed by the trustee. Whether this trust suits your situation depends on factors like your financial net worth, age, health, and how you will pay for any future care.
What Do Different Kinds of Trusts Do?
Trusts can be further categorized by their purpose and structured according to your goals. These are some of the most common types:
- Special/Supplemental Needs Trusts – These trusts protect assets for people with disabilities without affecting their eligibility for public benefits.
- Medicaid Asset Protection Trusts - (Irrevocable) These trusts are safer than giving property to a child or someone who might face creditors, mismanage it, or experience a divorce or another life change. (The transfer of assets to such trusts may be penalized if the trust creator applies for Medicaid within five years of the transfer, so such transfers should only be made in consultation with a lawyer with knowledge of your state's Medicaid laws and rules.)
- Camp Trusts – They keep property in the family with set rules for later generations.
- Tax-Oriented Trusts – For large estates, these trusts can minimize estate tax. (In 2025, the Maine estate tax annual exclusion is $7 million, and the federal estate tax exemption is $13.99 million.)
- Pet Trusts – When you can't provide ongoing care, these trusts leave funds to a specified caregiver.
Is a Trust Right for You?
Not every estate plan needs a trust, but if you think your plan would benefit from one, perhaps you would like guidance.
An experienced estate planning attorney can help you decide if you need a trust and tailor one to your needs. Setting up the right trust now can reduce stress and uncertainty. To ensure your wishes are carried out smoothly, for a free (and "trust-worthy") consultation, contact us online or call (207) 377-3966.
