• Skip to primary navigation
  • Skip to main content

The Hayes Law Firm

Estate and Elder Law Information Center

  • (626) 403-2292
  • Attend a Free Webinar
  • Home
  • Our Firm
    • About Our Firm
    • Virtual Estate Planning
    • About The American Academy
    • Advantages of Working With Our Firm
    • Attorney and Staff Profiles
    • Speaker Connection
    • Multi-Media
    • Reviews
    • College Internship Program (Marketing)
  • Estate Planning
    • Asset Protection & Business Planning
    • Estate and Gift Taxes: Figures
    • Family-Owned Businesses
    • Financial Planning Assistance
    • Incapacity Planning
    • IRA & Retirement Planning
    • Legacy Planning
    • LGBTQ+ Estate Planning
    • Pet Planning
    • SECURE Act
    • Special Needs Planning
  • Probate Process
    • CA Probate & Estate Planning Savings Calculator
    • California Probate Process
    • Common Probate Questions
    • Probate Resources
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • The Mourner’s Bill of Rights
      • Trust Administration & Probate Definitions
      • When a Loved One Passes Away With a Trust
      • When a Loved One Passes Away With a Will
    • Why Hire a Probate Attorney?
  • Trust Administration
    • Trust Administration Resources
    • Trust Administration Assistance
  • Resources
    • Feature Articles by The Hayes Law Firm
    • DocuBank
    • COVID-19 Estate Planning Resources
    • Educational Heroes
    • Elder Law Reports
    • Estate Planning Resources
      • Estate Planning Checkup
      • Estate Planning Definitions
      • Estate Planning Articles
      • Estate Planning Reports
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Frequently Asked Questions
      • Estate Planning FAQ’s
      • FAQ’s for Families Without an Estate Plan
      • Legacy Wealth Planning FAQ’s
      • LGBTQ Estate Planning FAQ’s
      • Trust Administration & Probate FAQ’s
    • LGBTQ+ Resources
    • Newsletters
    • Special Needs Resources
  • Elder Law
    • Are You A Caregiver for a disabled loved one?
    • Coping With Alzheimer’s
    • Emergency Medi-Cal & Nursing Home Planning
    • Guardianship & Conservatorship
    • Hospice Care
    • Medi-Cal Planning
    • Veteran’s Benefits
  • Seminars and Webinars
  • Contact Us
    • Preparing for Your Initial Consultation
  • Blog

All About The Most Popular Estate-Planning Trusts

William Hayes · Nov 25, 2020 ·

by Bob Carlson, senior contributor to Forbes Magazine

Here’s What You Need To Know About The Most-Popular Estate Planning Trusts – Trusts are an essential part of most estate plans, even the plans of people with moderate wealth. You need to know the basics of trusts, especially the key terms and concepts of the most widely-used types of trusts. Keep in mind that some of these trusts are given different names in some regions or by different estate planners, but you should be able to tell if the trust described is one of these.

A trust is a legal agreement involving at least three parties. The same person or persons can be in more than one of these roles at the same time. The terms of the trust usually are embodied in a legal document called a trust agreement.

The first party is the person who creates the trust, known as a trustor, grantor, settlor, or creator.

The trustee is the second party to the agreement. The trustee has legal title to the property in the trust and manages the property according to the terms of the trust agreement and state law. In most states when title to the property has to be recorded it is recorded in the trustee’s name but as trustee not as an individual, such as “John Smith, Trustee of the Smith Family Trust.”

The third party is the beneficiary, the person who benefits from the trust. There can be multiple beneficiaries at the same time. There also can be different beneficiaries over time. There can be primary or current beneficiaries who receive the benefits now, and they can be followed by contingent, successor, or alternate beneficiaries who might receive benefits later.

Sometimes an individual is an income beneficiary, meaning he or she receives only income earned by the trust, such as interest and dividends. Other beneficiaries might be remainder beneficiaries, receiving what remains in the trust after previous beneficiaries pass away or their rights expire.

The trustee is a fiduciary who is obligated to manage the trust property solely in the interests of the beneficiaries and consistent with the trust agreement and the law.

More than one person can be in any of these roles at the same time. There can be co-grantors, co-trustees, and co-beneficiaries.

While a trust is created when the trust agreement is signed and executed, the trust isn’t really operational until it is funded by transferring property to it.

Living Trust & Estate Planning
Getty Images

A living trust, also known as an inter vivos trust, is one created during the trustor’s lifetime. A testamentary trust is created in the trustor’s last will and testament.

A trust can be revocable, meaning the trustor can revoke it or change its terms at any time. An irrevocable trust can’t be changed or revoked, though limited changes are allowed in some irrevocable trusts.

Perhaps the most frequently-used trust is the revocable living trust, which many people refer to simply as a living trust. In a typical revocable living trust, a married couple creates the trust and are the first co-trustees and co-beneficiaries. Ownership of most of their assets is transferred to the trust, including real estate, vehicles, financial accounts, and more.

The trustees manage the assets for their own benefit just as they did before the trust was created. After they pass away, a successor trustee named in the trust agreement (often one of the settlors’ adult children) takes over and acts for the benefit of the successor beneficiaries (usually the children and perhaps grandchildren of the settlors). Typically the assets are distributed to the successor beneficiaries as directed in the trust agreement.

Assets owned by the revocable living trust avoid the cost, delay, and publicity of probate. The trust agreement operates as a substitute will, directing how the assets are to be distributed after the settlors pass away.

A revocable living trust also serves as a substitute for a power of attorney. A co-trustee or successor trustee can step up and manage the trust assets whenever an initial trustee is unable to.

There are no tax benefits to a revocable living trust. The settlors-trustees are taxed as though they still own the assets. In addition, the assets in the trust are included in their estates under the federal estate tax.

An irrevocable trust usually is created to save income or estate taxes or both. It also can protect assets from creditors.

When assets are transferred to an irrevocable trust, the income and gains are taxed to the trust when they are retained by the trust and taxed to the beneficiaries when distributed to them.

Under the federal estate tax and most state estate taxes, assets transferred to an irrevocable trust aren’t included in the grantor’s estate. Transfers to the trust are gifts to the beneficiaries. The grantor’s gift tax annual exclusion and lifetime exemption can be used to avoid gift taxes until gifts exceed the exclusion and exemption.

A grantor trust is an income tax term describing a trust in which the grantor is taxed on the income, because he or she retained rights to or benefits of the property. The revocable living trust is an example of a grantor trust.

A trust can be discretionary or nondiscretionary.

A trustee of a discretionary trust has authority to make or withhold distributions to beneficiaries as the trustee deems appropriate or in their best interests. The discretion allows the trustee to withhold or reduce distributions if the beneficiary is wasting the money or has a problem such as substance abuse or gambling. The trustee also can protect the money from creditors and divorcing spouses.

Discretion allows the trustee to increase distributions when the beneficiary has a need or good use for more money. The discretion also allows the trustee to take income taxes into consideration and distribute or accumulate income to minimize overall income taxes.

In a nondiscretionary trust, the trustee makes distributions according to a formula or other directions in the trust agreement.

A spendthrift trust is an irrevocable trust that can be either living or testamentary. The key provision limits the beneficiary’s access to the trust principal. The beneficiary and the beneficiary’s creditors can’t force distributions. The spendthrift provision is used when the settlor is concerned a beneficiary might waste the money or have trouble with creditors. Most states allow spendthrift trusts, but some states limit the amount of principal that can be protected or don’t recognize spendthrift provisions.

A special needs trust is created to provide for an individual who needs help and assistance for life, often a child or sibling of the trust settlor. It can be either living or testamentary. The key to a special needs trust is it has language that ensures the beneficiary can receive financial support from the trust without being disqualified from federal and state support programs for those with special needs.

For many people, this is all you need to know to work with an estate planner to create an appropriate trust for you. Other people might use this as a foundation to create more sophisticated or specialized trusts.


Did you enjoy reading, Here’s What You Need To Know About The Most-Popular Estate Planning Trusts?  Interested in learning more about this subject? Attend an upcoming webinar!

Have You Properly Protected Your Loved Ones? (FREE Estate Planning Workshop)

Join us for a free Trustee and Power of Attorney Training School Webinar, Medi-Cal Webinar, and/or Probate Webinar. Get registered today!

This website is not intended to be a source of solicitation or legal advice. General information is made available for educational purposes only. The information on this blog is not an invitation for an attorney-client relationship, and website should not be used to substitute for obtaining legal advice from a licensed professional attorney in your state. Please call us at (626) 403-2292 if you wish to schedule an appointment for a legal consultation.

For more information about The Hayes Law Firm, visit our Google My Business page.

Hayes Law Firm office
The Hayes Law Firm Offices in South Pasadena, CA
  • Author
  • Recent Posts
William Hayes
William Hayes
As an attorney in private practice in Los Angeles County, California William Hayes provides extensive estate and tax planning services to individuals and businesses in Los Angeles, Pasadena, Glendale, Burbank and surrounding communities. Attorney Hayes’ primary focus is to help clients avoid probate, protect their assets, and provide for the security of their loved ones with a well-crafted estate plan. He believes in giving each client the time needed to explain his or her needs and wishes and then dedicates his efforts toward making the client’s desires clear in their final estate plan.
William Hayes
Latest posts by William Hayes (see all)
  • Travel Tips for Senior Citizens - May 23, 2022
  • Trusts for Those With Addiction Problems - May 22, 2022
  • What to Know About Credit Scores - May 9, 2022

Blog Subscription

Sign up for our newsletter and get our news straight to your inbox!

Stay Informed

Where we are

The Hayes Law Firm
729 Mission St. #300
South Pasadena, CA 91030
Phone: (626) 403-2292
Fax: (626) 403-2299
Proud Memberaaepa

Office hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 5:00 PM

Map

map
  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter
  • YouTube

The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information on this website is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

© 2022 · American Academy of Estate Planning Attorneys, Inc. | Disclaimer | Privacy Policy | Sitemap | Contact Us