10 Types of Trusts: A Quick Look

Considering the myriad of trusts available, creating the right estate plan can seem daunting.  However, that is what we, as estate planning attorneys, do every day. We know the laws and will design a plan which addresses your specific situation.

Here is a look at the basics of ten common trusts to provide you with a general understanding of the options available. There will not be a quiz at the end. When we meet, all you need to do is be prepared to share your goals and insight into your family and financial situation, and we will design a plan that incorporates the best documents for your situation.

1. Revocable Living Trust is a trust that you control during your lifetime and can change or revoke at any time. Also called an RLT, it is a legal entity that holds ownership of your assets—such as your home, bank accounts, and investments—while allowing you to retain full control during your lifetime and change or revoke it at any time. Its primary benefit is that it lets your assets pass to your chosen beneficiaries without going through Georgia probate court, keeping your affairs private, faster, and easier for your family. Georgia law fully recognizes revocable living trusts under the Georgia Trust Code (O.C.G.A. Title 53), making them one of the most effective tools for protecting families and avoiding court involvement.
2. Qualified Terminable Interest Property Trus (QDOT). A qualified terminable interest property trust is a special type of trust used when a U.S. citizen is married to a non-U.S. citizen spouse and wants to leave assets to that spouse without triggering immediate federal estate tax. Although Georgia has no state estate or inheritance tax, federal law does not allow the unlimited marital deduction for non-citizen spouses unless a QDOT is used. A QDOT allows assets to pass to the surviving non-citizen spouse at death while deferring federal estate taxes until distributions of principal are made or the spouse later becomes a U.S. citizen. Proper drafting and a qualified trustee are required to comply with federal rules. We often incorporate QDOTs into our joint revocable living trusts when one spouse is not a United States’ citizen.
3. Qualified Terminable Interest Property Trust (QTIP). A qualified terminable interest property trust initially provides income to the surviving spouse and, upon the surviving spouse’s death, the remaining money and property are distributed to other named beneficiaries, while still allowing the trust to qualify for the unlimited marital deduction. These are commonly used in second marriage situations and to maximize estate and generation-skipping tax exemptions and tax planning flexibility. We often incorporate a QDOT into our revocable living trust when we are planning for blended families to protect all beneficiaries.
4. Marital Trust. A marital trust is designed to protect the accounts and property for the surviving spouse’s benefit, as well as qualify for the unlimited marital deduction. These accounts and pieces of property are excluded from estate tax at the first spouse’s death but are included in his or her estate for tax purposes. We typically build these into our joint revocable living trusts to give maximum flexibility in tax planning for married couples.
5. Family or Bypass Trust. Commonly referred to as a credit shelter trust, family trust, or B trust, a bypass trust contains a portion of a deceased spouse’s accounts and property and uses the deceased spouse’s lifetime exclusion amount to reduce or eliminate estate tax. Because the estate tax is calculated at the first spouse’s death, this trust is bypassed for estate tax purposes at the second spouse’s death. We typically build these into our joint revocable living trusts to give maximum flexibility in tax planning for married couples.
6. Special Needs Trust. A special needs trust allows you to provide money or property for the benefit of someone with special needs without disqualifying them from receiving governmental benefits. Federal laws allow special needs beneficiaries to receive certain types of benefits from a carefully crafted trust without defeating eligibility for government benefits. We provide for the creation of Special Needs Trusts, Supplemental Needs Trusts, and Spousal Special Needs planning in our revocable living trusts so that the Trustee can protect beneficiaries if they become in a special needs or supplemental needs situation and do not want to lose their government benefits.
7. Medicaid Asset Protection Trust (MAPT): In Georgia, a Medicaid Asset Protection Trust (MAPT) is an irrevocable trust designed to help individuals protect assets—such as a home or savings—while planning ahead for potential long-term care and Medicaid eligibility. When assets are transferred into a MAPT, they are no longer considered owned by the person after the 5-year Medicaid look-back period, which can help preserve those assets for family members instead of being spent down on nursing home costs. Georgia follows federal Medicaid rules, and because the trust is irrevocable, careful planning and timing are essential to avoid penalties and ensure the assets remain protected.
8. Irrevocable Life Insurance Trust. An irrevocable life insurance trust is designed to own high-value life insurance and receive the payment of the death benefit upon the trustmaker’s death. The benefit of this type of trust is that the life insurance proceeds are excluded from the deceased’s estate for tax purposes. However, the proceeds are still available to provide liquidity to pay taxes, equalize inheritances, fund buy-sell agreements, or provide an inheritance.
9. Testamentary Trust. A testamentary trust is a trust created in a will. This type of trust is created upon the individual’s death and is commonly used to protect the money and property on behalf of a beneficiary as opposed to transferring the money and property to the beneficiary outright. It can be used when a beneficiary is too young to manage their own money or property, has medical or drug issues, or may be incapable of responsibly managing their own money. The trust can also provide asset protection from lawsuits, or a claim by a divorcing spouse brought against the beneficiary. Unlike a revocable living trust or an irrevocable trust, where property should be transferred into a trust during the trustmaker’s lifetime to work property and avoid probate, testamentary trusts require the sometimes lengthy and expensive probate process before the trust is created.

There are many types of trusts available. We will help you select which trusts, if any, are a good fit for you. Call Bowman Law Firm today to schedule your in-person or virtual appointment. We are waiting to hear from you.