What Types of Trusts are There?

As we discussed last week, a trust is just a way of holding and disposing of assets. I like to think of a trust as a basket to put things in. In general, there are four main types of trusts: Revocable, irrevocable, inter vivos, and testamentary. A trust is either revocable or irrevocable, and either inter vivos or testamentary, though it's possible for an inter vivos trust to be either revocable or irrevocable.

A revocable trust is one that can be revoked by the maker, usually called the trustor or settlor, at any time. An irrevocable trust is one that is permanent; it cannot be revoked once made. An inter vivos trust is a trust made during the trustor's life ("inter vivos" means "during life"). A testamentary trust, on the other hand, is one that is created by the trustor's last will and testament, and doesn't arise until after death. Because of this fact, a testamentary trust is of necessity an irrevocable trust.

A trust is a contract between the maker, the trustor, and another person, the trustee, who holds property given to him by the trustor for the benefit of third persons, called the beneficiaries. The trust agreement sets out the powers and duties of the trustee and usually specifies the conditions on which the trustee can use or give the trust property to the beneficiaries.