Below is a list of various common trust types and provision types that are often discussed in the context of estate planning along with other names for the same instrument with a brief overview of their most general use. There are variations, nuances, and specific rules for each type of trust and in certain circumstances the type of assets being placed in the trust.
A trust that is revocable at any time but becomes irrevocable on the death of the grantor at which point the assets in it transfer to the beneficiaries. This is the most common form of trust used in estate planning.
Joint Revocable Trust
A type of revocable trust with two grantors usually this references a trust where upon the death of one grantor the estate assets pass to the other grantor. Most commonly used by married couples, those in a civil union, or long term partners.
Qualified Terminable Interest Property (QTIP)
A trust where the income from the trust assets goes to the surviving spouse for that spouse’s lifetime. Upon their death the remainder goes to the final beneficiaries, usually children. This is most often used to insure that a spouse is taken care of for their life but cannot erode the estate value or change beneficiary.
Clayton Provision
A provision that allows for the executor or personal representative of the decedent to control how much of the estate is disclaimed or contributed to a QTIP. Provides additional protection against waiver of the tax benefit and allows for the surviving spouse to retain a power of appointment for the remainder trust.
Credit Shelter Trust (CST) aka AB Trust or Bypass Trusts
This is a provision in a trust that allows both spouses to use their estate tax exemption. When the first spouse dies the maximum amount of the estate tax exemption passes into a separate trust. Either the surviving spouse generally receives income from that trust with the principal going to other beneficiaries on the death of the surviving spouse, or it goes directly to other beneficiaries. When the surviving spouse dies they use their estate tax exemption. In this way each spouse uses the estate tax exemption.
Generation Skipping Trust (GST)
A trust where the assets skip a generation and are passed to grandchildren or others who are less than 37.5 years younger than the grantor and not a spouse or ex-wife. There are specific Generation Skipping Transfer Taxes (GSTT) that may require structuring to avoid but these are generally only applicable to high net worth individuals.
Pooled or Pot Trusts
This is a general structure in trusts where a group of beneficiaries has rights to a pool of assets. If one is not living at the time the rights are divided among the other beneficiaries or can devolve on to other, contingent beneficiaries.
Disclaimer Trust
This is the inclusion of terms that allow for a surviving spouse to disclaim rights to property in which case such property funds an irrevocable trust (usually for children) in order to utilize the non-surviving spouse's tax exemption. This is best used for individuals whose estates are or might become at risk of state or federal estate taxation.
Irrevocable Life Insurance Trust (ILIT)
An irrevocable trust whose asset is a life insurance policy, generally used as part of tax planning (for example to be used to pay for estate taxes), asset protection planning, or spendthrift / special needs trust planning.
Intentionally Defective Grantor Trust (IDGT)
A type of trust where the grantor retains rights that cause the trust assets’ income to be taxable to the grantor but appreciation on the assets to be transferred to beneficiaries but also excluded from the value of the estate for estate tax purposes. These are complex trusts used for high net worth individuals to transfer low tax basis assets and as a result, reduce estate tax.
Qualified Personal Residence Trusts (QPRT)
A trust that provides for a gift of a remainder interest in a personal residence to beneficiaries while the grantor retains an interest in the property as their main residence for a period of time. This allows for appreciation on the property from the creation of the trust until the time the trust terminates to be transferred to beneficiaries without affecting adding to the estate value. Used by high net worth clients as a means of reducing estate tax burdens.
Grantor Retained Annuity Trust (GRAT)
An irrevocable trust funded by assets from the grantor that pays an annuity to the grantor, at the end of the trust period the assets are transferred to the beneficiaries. The grantor must earn the original value of the assets at time of transfer into the trust plus what is referred to as the “7520 Rate” (the IRS required rate of return or hurdle rate). At the expiration of the GRAT the assets pass to the beneficiaries and appreciation on the assets is not included in the grantor's estate.
Grantor Retained Unitrust (GRUT) aka Total Return Trust
An irrevocable trust funded by assets from the grantor that pays a portion of the fixed value of the assets to the grantor on a periodic basis at a required annuity rate. At the end of the trust period the assets are transferred to the beneficiaries and appreciation on the assets is not included in the grantor's estate. The major difference between a GRAT and a GRUT are the use of fixed payments versus variable payments with the use dependent on the type of asset and its expected appreciation over the trust term.
Charitable Remainder Trust (CRT)
A general type of trust with specific subtypes where the grantor or beneficiaries, for example a surviving spouse or child, retains income such as annuities or a percentage of value, from the trust assets with the remainder of the trust transferred to a charitable organization after a set time or the death of the last beneficiary. An often chosen mechanism to provide for immediate family members during their lives but also to donate to grantor selected charitable endeavors. These are fairly common trusts both generally and for high net worth individuals.
Charitable Remainder Annuity Trust (CRAT)
A charitable remainder annuity trust is a subtype of the CRT where the initial beneficiaries, such as a surviving spouse or children, receive annuity payments for the term of the trust, usually either a set period of time or upon the death of such beneficiaries, and after the term of the trust the remainder is transferred to a charitable organization.
Charitable Remainder Unitrust (CRUT)
A charitable remainder unitrust is a subtype of the CRT where the initial beneficiaries, such as a surviving spouse or children, receive a portion of the value of the trust assets for the term of the trust, usually either a set period of time or upon the death of such beneficiaries, and after the term of the trust the remainder is transferred to a charitable organization.
Charitable Lead Annuity Trust (CLAT)
A charitable lead annuity trust is a type of charitable trust where an authorized recipient such as a charity, donor advised fund, or foundation selected by the grantor receives annuity payments from the assets of the trust with the remainder of the assets after the term of the trust being left to beneficiaries. The CLAT can reduce the taxable estate of the grantor but will use the grantors gift tax charitable deduction. Such trusts are generally used with high net worth individuals for use in minimizing estate tax liabilities.
Charitable Lead Unitrust (CRUT)
A charitable lead unitrust is a type of charitable trust where an authorized recipient such as a charity, donor advised fund, or foundation selected by the grantor receives a set percentage of the trusts assets each year with the remainder of the assets after the term of the trust being left to beneficiaries. The CRUT can reduce the taxable estate of the grantor but will use the grantors gift tax charitable deduction. Such trusts are generally used with high net worth individuals for use in minimizing estate tax liabilities.
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