Types of Trusts

Types of Trusts

When you are exploring other financial options to retirement, beyond individual retirement accounts (IRAs) and 401ks, one option is a trust.  While there is the popular notion of a trust as being a fund where a parent sets aside money to be distributed to his or her children in the event of the parent’s death, and the money is in an account held in trust by a lawyer or similar custodian, there are actually several types of trusts to be aware of with regard to retirement.

Basically there are two types of trusts: a living trust, and a testamentary trust.  A living trust is established while a person is alive (the person who requests the trust be set up).  A testamentary trust is established in a person’s will, and takes effect after the person’s death.

Living trusts are either revocable, or irrevocable.  A revocable trust allows a person to control a trust’s assets, and the terms of the trust can be changed or revoked whenever.  Irrevocable trusts on the other hand generally do not allow a change in the terms of the trust, except with the beneficiary’s consent, and the person no longer controls the assets of the trust; as the assets of this trust appreciate, they will not be subject to estate taxes.

There are other types of trusts, such as credit shelter trusts, generation-skipping trusts, qualified personal residence trusts, irrevocable life insurance trusts, qualified terminable interest property trusts, and so on.

Check out more information about trusts with respect to exploring them as financial options for retirement.