1. Revocable Living Trust
A revocable trust is a legal agreement created by an asset owner (grantor, settlor, trustor) to hold the grantor's assets and manage them by a designated person (trustee). In many cases, the grantor is also a trustee.
When the grantor dies, the assets are distributed to the beneficiaries mentioned in the trust agreement. Unlike the will, a trust does not have to clear the courts for the assets to be distributed.
The grantor can modify, amend, and terminate the terms of trust during their lifetime.
2. Irrevocable Living Trust
An irrevocable trust works similarly to a revocable trust. However, the grantor cannot change or revoke it without the permission of beneficiaries named in the trust agreement.
This type of trust is an excellent solution for people with a profession that puts them at risk for lawsuits (e.g., surgeons).
They can also be beneficial for owners of exceptionally large estates since the part of the estate in the trust doesn't contribute to the value of your estate for the purposes of taxation and such benefits like Medicare, Medicaid, and Supplement Security Income.
3. Testamentary Trust
A testamentary trust is part of the last will and testament. In the will, the grantor appoints a trustee to manage assets after their death.
Its purpose is to ensure a fair distribution of your assets and life insurance payouts. The trust goes into effect after the grantor's death. Once the will passes probate, the executor transfers the property into the testamentary trust.
The trustee manages the assets until the trust's expiration, which is usually tied to a particular event. (E.g., a child reaching childhood or graduating from college).