A trust is a relationship between a trustee and a beneficiary. A trust's settlor or grantor are other terms for the person who creates the Trust. The trustor's responsible for creating the Trust and placing assets within it. The Trust's assets must be managed by the terms set forth by the trustor, who is known as the Trustee. Until their demise, the trustor will often also serve as the Trustee.

A trust, like a will, can name recipients of its assets. Your spouse, children, relatives, and acquaintances could qualify as beneficiaries. Beneficiaries of trusts can also be charitable organizations. Those you designate as beneficiaries are legally entitled to receive trust assets by the terms you (the settlor) establish with the Trustee.

Now we'll closely examine the many different types of Trusts options available to you.

1. Marital Trusts

One spouse can set up a marital trust (also known as an "A" Trust) for the other. After the first spouse passes away, the surviving spouse receives all of the Trust's assets and income. By placing their shared assets into a marital trust, the couple can save on estate taxes for the survivor. However, any assets in the Trust that are subsequently distributed to the deceased spouse's heirs will be subject to estate taxes.

2. Living Trusts

In legal terms, a Living Trust is the same as a Revocable Trust. You set it up during your lifetime and will leave it to whoever you specify when you pass away. While a Living Trust can help your loved ones escape the probate procedure after you pass away, it is not a good tool for protecting your assets during your lifetime. While a Living Trust will make it more difficult for creditors to obtain your assets during your lifetime, it is still possible. It's not 100% reliable.

3. Joint Trusts

When two persons want Trust together, a Joint Trust may be the best solution. For a married pair, this kind of Trust is ideal. During their lifetimes together, both partners can continue to exercise control over the assets, and upon the death of one, the other becomes Trustee automatically.

4. Bypass Trusts

To lessen the burden of inheritance taxes on their descendants, married couples can set up a bypass or credit shelter trust (sometimes called a "B"). At the moment of the first spouse's passing, the assets under this irrevocable Trust are given immediately to the surviving spouse. However, the assets are not transferred straight to the surviving spouse. Instead, the Trustee manages the assets and keeps them from the spouse's inheritance. When the last surviving spouse passes away, their heirs receive all the assets tax-free.

5. Charitable Trusts

Including a charitable trust in your will is a great way to leave a lasting impact through your donations. A charitable lead trust or charitable remainder trust can be set up to benefit a charity of your choice.

With a charitable lead trust, you can leave money or property to one or more organizations while still providing for your dependents. A charitable residual trust is an irrevocable Trust in which you earn income from your assets for a specified time and then donate the balance to a charity of your choice.

6. Testamentary Trusts

A Testamentary Trust, also known as a "Will Trust" or "Trust Under Will," is a trust established inside a Will that does not become active until after the testator's death. Your last will details the steps that must be taken at the appropriate time to establish the Trust. In contrast, to live Trusts, Testamentary Trusts don't come into effect until after your death and are therefore not considered "living" documents. If you have a Testamentary Trust, you should know that it will have to go through probate, and you will also lose some of the privacy protection that other Trusts can offer.

7. Special Needs Trusts

A Special Needs Trust is established to benefit a person under 65 who is disabled and will require lifelong care. These Trusts provide financial support without jeopardizing eligibility for supplementary government aid (Medicaid or the Supplemental Security Income program). There are three primary kinds of Special Needs Trusts, and the one you select should be tailored to your specific situation and requirements.

8. Grantor Retained Annuity Trust (GRAT)

A GRAT is only set up for a limited period. It's a systematic strategy for reducing tax liability associated with giving money to certain persons. You can fund this Trust with the assets you wish to donate, and in exchange, you'll get a regular annuity payment equal to a percentage of the Trust's initial value. At the end of the period, any residual balance will be transferred to your heirs free of gift taxes. It's a smart strategy for providing for your loved ones in the future while still enjoying financial security in the here and now.