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What are some common types of trusts?
A Simple Trust is a trust which makes no distributions other than current income. The trust terms require all its income to be distributed currently and do not provide for charitable contributions.
A Complex Trust is a trust that permits accumulation of income, charitable deductions. or distribution of principal.
A Revocable Trust is any trust that is set up in such a way that the grantor reserves the right to revoke the trust at any time and remains in control of the assets.
A Grantor Trust is a trust in which all income and expenses of the trust are treated as belonging to the grantor (creator of the trust).
A Testamentary Trust is one that is created by a will or that becomes irrevocable only when the grantor dies. For example, a sole proprietorship of a business might choose to place their business in a trust that they can revoke or amend at any time prior to their death and where they are the beneficiary until their death. Or they could create a trust and leave the business in the trust in their will. These arrangements allow them to change who will inherit the business by changing the person who will be the beneficiaries after their death rather than changing their will. This type of trust will be a Grantor Trust before the sole proprietor dies.
The opposite of a Testamentary Trust is an Inter Vivos Trust, which is created by a living person for the benefit of another person. Also known as a living trust, this trust has a duration that is determined at the trust's creation and can entail the distribution of assets to the beneficiary during or after the trustor's lifetime. A parent who sets up an education fund for a child's college education is an example of an Inter Vivos Trust.
For more information about trusts, see the Fiduciary (Trust and Estate) web page on our website.