What Are the Different Types of Trusts? Explained and Compared

Trusts are versatile financial instruments with many uses and benefits. However, there are several different types of trusts in existence, each with their own unique characteristics, and therefore different uses and relative strengths and weaknesses. 

Before deciding to form a trust, it is important to have a thorough understanding of how trusts are classified and the various types which exist. This will help you to make an informed choice on the right type of trust for you, and understand its various terms and features.

We will start with a general explanation of what a trust is. We will then look at the main trust categories before going over the various types of trusts which exist within these categories. Finally, we will discuss how to decide which trust is the best type for you.

What is a Trust?

A trust is a legal agreement between three parties: the grantor/settlor, the trustee, and the beneficiary/beneficiaries. The grantor transfers assets into the trust’s possession, which are overseen by the trustee (who acts as a neutral third party in the best interest of the trust). The beneficiary is the party who ultimately receives the benefits of the assets in one form or another. The way in which the benefits are distributed will depend primarily on the terms of the trust. Some types of trusts allow the grantor to also be the sole beneficiary, meaning there are really only two parties involved in the trust agreement. 

Trusts are most commonly used either as estate planning tools for transferring assets to heirs in an efficient manner, or as asset protection vehicles to protect one’s own wealth from lawsuits and other risks. There are also various other purposes for forming a trust, such as to optimise taxes, increase financial privacy, access better investment opportunities, diversify one’s asset portfolio, and so forth. 

The Role of Trust Parties: Grantor, Trustee, and Beneficiary

The grantor (also called settlor or trustor) creates the trust and transfers assets into it. This individual determines the trust’s terms, objectives, and distribution guidelines.

The trustee holds legal title to trust property and manages assets according to the grantor’s instructions. Trustees have fiduciary responsibilities to act in beneficiaries’ best interests, not their own.

Trustees may be individuals (family members, friends) or institutions (banks, trust companies). Some grantors serve as their own trustees in certain trust arrangements.

Beneficiaries receive benefits from the trust according to the terms established by the grantor. They may receive income, principal, or both, either immediately or at future dates.

The Legal Process of Creating a Trust

Creating a valid trust requires several key elements. First, the grantor must have legal capacity and genuine intent to establish a trust relationship.

The trust document must clearly identify the trustee, beneficiaries, and trust property. It should specify distribution terms and trustee powers.

Funding the trust involves transferring assets into the trustee’s name. Without proper funding, the trust becomes an empty legal shell with little practical value.

Depending on the trust type, additional steps may include recording deeds, changing account registrations, or updating beneficiary designations. Proper execution may require witnesses and notarization according to state laws.

Many grantors work with estate planning attorneys to ensure trusts meet their specific objectives while complying with relevant tax and property laws.

What are the Main Types of Trust?

Trusts can broadly be categorised in two ways. The first is to classify the trust according to whether it is a living trust or a testamentary trust. The second is to classify it as revocable or irrevocable. It is important to note that any trust type can be categorised along both of these lines. In other words, it will be either a living trust or a testamentary trust, and it will be either revocable or irrevocable. For example, an asset protection trust is both a living trust and an irrevocable trust because:

1. It is created while the grantor is alive (living trust) and,
2. The terms cannot be changed after inception (irrevocable trust).

We provide a more detailed explanation and comparison of these categories below:

Living vs Testamentary

All trusts are set up by the grantor/settlor, and will either be a living trust or a testamentary trust. 

A living trust (aka inter vivos trust) is created while you are alive. Most trusts are living trusts, and they have a variety of purposes, including:

• Efficient transfer of your estate to your beneficiaries thanks to the avoidance of probate procedures. This can save time and legal costs, as well as reduce estate taxes. 
• Asset protection, as in the case of specialised irrevocable asset protection trusts.  

A testamentary trust is a trust that is set up after you die according to your last will and testament. Testamentary trusts are interesting in that the terms can be changed at any time during your lifetime (as they depend on your final will), yet once established after your death, they generally take the form of an irrevocable trust. So, in a practical sense, they are as flexible as revocable living trusts for you, the grantor. This is because you can alter the terms at any time before the trust’s inception, which only happens after your death. However, the terms become fixed once you pass away, which protects the trust from any malicious tampering after that time.

Revocable vs Irrevocable

The difference between a revocable and an irrevocable trust is easy to understand by the names. To put it simply:

A revocable trust is a trust that allows you to alter or terminate (revoke) the trust after it has been created. In other words, you remain in full control of the assets in the trust, and are even legally still seen as the owner of the assets during your lifetime. With a revocable trust, you are allowed to name yourself as the primary trustee and appoint a successor trustee to take over in the event that you die or become incapacitated. 

Advantages

The advantages of a revocable trust include:

• Flexibility, because the terms of the trust can be altered at any stage, and you can add or remove assets from the trust as you please.
• Optimises the transfer of your estate to beneficiaries by circumventing costly and lengthy probate procedures.
• Can provide greater overall tax efficiency depending on tax laws and conventions in the jurisdiction in which you and the trust are based. 

An irrevocable trust is one that cannot be changed or modified in any way after it has been established. It is a completely separate legal entity from the grantor, and once you have transferred your assets into the trust, you are no longer the legal owner of those assets. Unlike a revocable trust, the grantor of the trust is not allowed to name themselves as the trustee, and must instead choose a third party to act as the official trustee of the trust. 

An irrevocable trust clearly provides less flexibility than a revocable trust, so you might be wondering why it is ever worthwhile opting to establish an irrevocable trust? 

The main benefit of an irrevocable trust is that it offers a much greater level of protection to the assets that you transfer into the trust. This is because you are no longer the legal owner of the assets, which makes it difficult for a creditor or plaintiff to lay claim to the assets in relation to a personal obligation you have. The irrevocable trust effectively creates a shield for the assets, and the price for this shield is a certain amount of loss of control. 

There are well-crafted irrevocable trusts such as the asset protection trust (APT), which allow the grantor to simultaneously be the sole beneficiary and therefore retain practical control and benefits related to the assets, while remaining legally separated. 

Along with strong asset protection, other benefits of an irrevocable trust include:

• Reduction in taxes (specifically estate and gift tax) by removing the assets from your personal estate.
• Increased financial privacy by removing your personal name from the ownership of the assets. This is enhanced with offshore irrevocable trusts.
• Allows you to tailor the way in which your assets are handled after death, without the risk of the terms of the trust being manipulated by malicious parties. 
• Removes the risk of rash decisions or those made out of mental impairment that could negatively alter the trust terms (i.e., a way to protect you from your future self or from being manipulated by others). 

26 Different Types of Trusts

There are a wide range of specific types of trusts that fall within the categories mentioned above. It is important to note that these types of trusts are not separate from the primary classifications previously mentioned. We can in fact think of them as the sub-categories that come after the main classifications. 

1. Asset Protection Trust

An asset protection trust (APT) is a special type of irrevocable trust that allows you to be both the grantor of the trust and the sole beneficiary at the same time. You only need appoint a trusted third-party trustee to oversee the assets in the trust. The trustee acts as per your wishes except if the assets are under direct threat of seizure (e.g., if there is a court case against you), in which case they can exercise their power as trustee to protect the assets in the trust. 

An APT is one of the most effective and widely used asset protection tools available. It provides a strong layer of protection by removing legal ownership and having irrevocable terms, while allowing you to retain control and benefits of the assets for all practical intents and purposes. APTs have been used with success to protect assets from creditors, legal disputes, and other judgements against the grantor’s estate.

A. Domestic Asset Protection Trusts

Domestic Asset Protection Trusts (DAPTs) shield assets from future creditors while potentially allowing the grantor to remain a beneficiary. These irrevocable trusts operate in specific states with favorable asset protection laws. High-net-worth individuals in litigation-prone professions often utilize DAPTs. States like Nevada, South Dakota, and Delaware have robust DAPT statutes offering significant protection. Key benefits include: protection from future creditors, retention of some beneficial interest and Privacy and confidentiality.

B. Foreign Asset Protection Trusts

Foreign Asset Protection Trusts (FAPTs) established in offshore jurisdictions like the Cook Islands or Nevis often provide even stronger protections against creditor claims due to favorable local laws. Timing is critical in establishing protection. Transfers made to avoid existing creditors may be challenged as fraudulent conveyances and potentially reversed by courts.

2. Testamentary Trusts

Testamentary trusts are created through instructions in a will and only take effect after the grantor’s death. Unlike living trusts, these trusts go through probate before being established. These trusts serve several important purposes: Asset management for minor children or financially inexperienced beneficiaries Spendthrift protection to shield assets from beneficiaries’ creditors, Tax planning for larger estates and Special needs provisions for disabled heirs.

Common variations include marital trusts (Q-TIPs) that provide for spouses while preserving estate tax exemptions, and bypass trusts that maximize the use of federal estate tax exemptions. The primary disadvantage is the lack of privacy and potential delays associated with probate. However, testamentary trusts remain valuable tools when the grantor wishes to maintain complete control of assets until death.

3. Living Trusts or Revocable Trust

Living trusts, established during the grantor’s lifetime, come in both revocable and irrevocable forms. These trusts facilitate the smooth transfer of assets without court intervention.

Benefits of living trusts include: Probate avoidance, saving time and money, Privacy protection, as trust documents remain confidential, Incapacity planning through successor trustee provisions and Consolidated asset management across multiple jurisdictions.

4. Irrevocable Trust

An irrevocable trust cannot be altered or revoked once established. By transferring assets into this trust, the grantor relinquishes ownership, removing them from their taxable estate.

This structure offers significant tax advantages, creditor protection, and eligibility for government benefits (e.g., Medicaid). However, the trade-off is loss of control: the grantor cannot reclaim assets or change terms without beneficiary consent. It is commonly used for estate tax reduction, asset protection, or safeguarding wealth for future generations.

5. Spendthrift Trust

A spendthrift trust allows you to tailor the terms of the trust to specify exactly when and how the assets are distributed to the beneficiaries, as opposed to them simply receiving a lump sum upon your death.

This is particularly useful for transferring an estate to your children where you believe they may not be mature enough to manage the funds properly. You can specify that they receive the benefits in instalments over time, or that they only get allocated regular income from the assets. 

6. Qualified Terminable Interest Property Trust (QTIP)

A QTIP trust allows you to allocate the assets in the trust or income from those assets to different beneficiaries at various times. One example would be to allocate a fixed monthly income from the trust to your spouse while they are alive, and then the remaining assets to your children after your spouse dies.

This can stop your spouse from receiving the total capital value of the trust assets and ensures that your children will finally receive the benefits of the estate, while still providing for your spouse with the regular income payments. 

7. Qualified Personal Residence Trusts

A Qualified Personal Residence Trust (QPRT) allows homeowners to transfer their primary residence or vacation home to beneficiaries at a reduced gift tax value. The grantor retains the right to live in the property for a specified term.

When the term expires, the property transfers to beneficiaries while the grantor can arrange to continue living there by paying fair market rent. This arrangement works particularly well in estate planning for individuals with substantial real property holdings.

8. Charitable Trust

A charitable trust distributes assets to a charity or non-profit organisation of your choice upon death. There are different types of charitable trusts, but they are most commonly living and revocable in nature. They allow the charity to receive a greater share of assets as they reduce or completely avoid estate and gift taxes. 

Charitable trust terms can also be added to a standard living trust so that your heirs receive a fixed portion of the estate, and the charity receives the remainder. This is known as a ‘charitable remainder trust’. 

9. Charitable Lead Trust (CLT)

A charitable lead trust operates inversely to a CRT: a charity receives income for a specified term, and the remaining assets revert to non-charitable beneficiaries (e.g., heirs).

This trust reduces estate taxes by removing assets from the grantor’s taxable estate while fulfilling philanthropic goals. It is often used by high-net-worth families to transfer wealth to heirs at a reduced tax cost while supporting charitable causes.

10. Life Insurance Trust

A life insurance trust is a type of irrevocable trust with the function of holding the proceeds of your life insurance policy when it is paid out.

This allows the insurance pay-outs to be invested as they are received. It also means that the trustee can distribute the pay-outs to your beneficiaries without them incurring any estate taxes. 

11. Joint Trusts

Joint trusts, commonly established by married couples, require careful handling during divorce. These trust structures typically hold shared assets and name both spouses as trustees and beneficiaries.

During divorce, joint trusts usually need to be divided or terminated. Assets must be inventoried, valued, and distributed according to the divorce settlement or court order. Some couples create new, separate trusts as part of their divorce agreement. This approach allows each former spouse to maintain trust benefits while separating financial interests.

12. Pet Trusts

Pet trusts provide for the care of animals after their owner’s death or incapacity. Unlike traditional estate planning mechanisms, these specialized trusts recognize pets’ unique needs and ensure their continued well-being.

A properly structured pet trust designates funds specifically for the animal’s care, veterinary expenses, and daily needs. It also names a caretaker responsible for the pet’s physical care and a trustee to manage the funds.

13. Generation-Skipping Trusts

Generation-skipping trusts (GSTs) transfer assets to grandchildren or later generations while minimizing estate taxes. These trusts effectively “skip” a generation in the transfer process.

GSTs help wealthy families preserve assets across multiple generations. Without this structure, transferring assets to children and then to grandchildren would trigger estate taxes at each generational transfer.

14. Blind Trusts: in Avoiding Conflicts of Interest

Blind trusts provide a mechanism for public officials and executives to avoid potential conflicts of interest while maintaining their investments. The trustee manages assets independently, without direction from or reporting details to the beneficiary.

This arrangement creates a “blind” barrier between the official and their financial interests. The official neither knows how their assets are being managed nor makes decisions affecting them. Many jurisdictions require or strongly encourage blind trusts for elected officials, cabinet members, and regulatory appointees. The goal is to prevent situations where officials might make decisions benefiting their personal portfolios.

15. Totten Trust (Payable-on-Death Account)

A Totten trust is a simple, informal arrangement for bank accounts or securities. The grantor designates a beneficiary who gains access to the funds upon the grantor’s death, avoiding probate.

The grantor retains full control during their lifetime and can modify beneficiaries at any time. This trust is ideal for small estates or individuals seeking a low-effort way to transfer specific assets.

16. Constructive Trust

A constructive trust is a court-imposed remedy to prevent unjust enrichment. It arises when someone wrongfully holds property (e.g., through fraud or breach of fiduciary duty) and is ordered to transfer it to the rightful owner.

Unlike other trusts, it is not created intentionally but serves as an equitable solution to rectify wrongdoing.

17. Dynasty Trust

A dynasty trust preserves wealth across multiple generations by leveraging long-term tax exemptions. Assets grow tax-free within the trust, avoiding estate, gift, and generation-skipping taxes. Some states permit these trusts to last hundreds of years.

They are favored by families seeking to build a lasting financial legacy while minimizing tax burdens.

18. Bypass Trust (Credit Shelter Trust)

A bypass trust, or credit shelter trust, allows married couples to maximize federal estate tax exemptions. When the first spouse dies, assets up to the exemption limit fund the trust, providing income to the surviving spouse while preserving the exemption for heirs. Upon the second spouse’s death, the remaining assets pass to beneficiaries tax-free. This strategy prevents the combined estate from exceeding tax exemption thresholds, reducing overall estate tax liability.

19. AB Trust (Bypass/Credit Shelter Trust)

Typically created under a will or living trust, this arrangement splits into two trusts upon the death of the first spouse.

Trust “A” (the Survivor’s Trust) holds the portion of the estate that the surviving spouse can use freely, and Trust “B” (the Bypass Trust) holds the portion equal to the deceased’s estate tax exemption

20. Minor’s Trust / Education Trust

These are trusts created to manage and safeguard assets for a child until they reach a specified age or achieve a milestone (like completing education). For example, a will might leave assets “in trust” for a child until age 25. Until then, the trustee can use funds for the child’s education, support, and health.

Primary purpose: Avoid giving a young person a large sum of money before they are mature, while ensuring funds are available for their upbringing and schooling. Key features: Often structured as either a discretionary trust (trustee decides when to pay for the child’s needs) or a trust with a mandate to pay for education expenses.

21. Resulting Trust

A resulting trust arises by operation of law (not by intent) when property is transferred under unclear circumstances. For example, if Person A pays for a house but titles it in Person B’s name without a gift intention, a court may impose a resulting trust to return the property to Person A. It’s a remedial tool similar to a constructive trust but focuses on restoring ownership.

22. Pour-Over Trust

A pour-over trust works alongside a will to “catch” any assets not explicitly transferred into the trust during the grantor’s lifetime.

At death, remaining assets “pour over” into the trust, ensuring they’re distributed according to the trust’s terms. It acts as a safety net but doesn’t avoid probate for those assets.

23. Business Trust

A business trust holds ownership of a company or its assets, separating them from personal liability. Trustees manage the business for beneficiaries (often investors or family members). This structure is used for succession planning, asset protection, or managing shared ownership in ventures like real estate syndications.

24. Survivor’s Trust

Often used in marital estate planning, a survivor’s trust holds assets for the surviving spouse while preserving the deceased spouse’s estate tax exemption.

It’s paired with a bypass trust (credit shelter trust) to optimize tax efficiency and control.

25. Special Needs Trust

Special Needs Trusts (SNTs) are designed to benefit individuals with disabilities while preserving their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). These trusts supplement rather than replace public assistance programs. There are three primary types:

1. First-party SNTs: Funded with the beneficiary’s own assets
2. Third-party SNTs: Created by family members for the disabled individual
3. Pooled trusts: Managed by nonprofit organizations for multiple beneficiaries

26. Grantor Retained Annuity Trust (GRAT)

A GRAT allows the grantor to transfer appreciating assets (e.g., stocks or real estate) while retaining annuity payments for a fixed term. If the grantor outlives the term, remaining assets pass to beneficiaries with minimal gift taxes. GRATs are popular for transferring high-growth assets tax-efficiently, particularly in low-interest-rate environments.

Which Type Should You Choose?

It should be clear by now that there is no one-size-fits-all solution when it comes to establishing a trust. Each type of trust has its own unique set of features which makes it useful in certain circumstances and useless in others. It is exactly this wide versatility of trusts that have made them such popular and effective financial tools. 

In order to determine which type of trust you should choose; you must first have a clear understanding of your own situation and what your objectives are for opening a trust. You should then consult directly with an asset protection attorney or other trust fund expert to help you decide which type of trust is best for you.

They will also be able to guide on where and how to establish the trust in the most effective and affordable way. Doing your own prior research and having a basic understanding of the different types of trusts available and how they operate will definitely smoothen the process and help ensure that you get exactly what you are looking for. 

Ready to Set Up the Right Trust for Your Needs?

Don’t navigate the complex world of trusts alone. Whether you’re looking to protect your assets, secure your family’s future, or optimize your estate plan—our experts are here to help. Get in Touch with Offshore Law Center and discover which type of trust aligns best with your goals.