What is a trust? A guide to types, purposes & tax strategies

In planning your estate, don’t overlook the role trusts can play. Establishing trusts as a way to transfer wealth isn’t just for the wealthy. Trusts can help support your wealth transfer, estate planning and legacy planning goals. They provide strategic benefits, including minimizing taxes and supporting the people and causes you care about. Trusts also offer the emotional benefit of knowing that your wishes will be carried out today and in the future, supporting your loved ones and the causes you care about.

A trust is a legal arrangement that can help you control and transfer your wealth—including real estate, investments, business interests and digital assets—both while you are alive and after you have died.

Among the benefits of trusts are more control over your assets, including how and when your assets are distributed. They also can help minimize estate taxes, avoid probate and keep your estate details private from public records.

The key roles in a trust include:

• Grantor. The grantor is the person who creates the trust—sometimes called the settlor or trustor—and decides the terms for managing and distributing assets.
• Trustee. The trustee is responsible for safeguarding and managing the trust assets for the grantor or the beneficiaries.
• Beneficiary. The beneficiary is a person or legal entity entitled to the assets held in the trust. 

Trusts can take many shapes. Factors include whether you're giving up control of the assets forever or just for the time being, whether it takes effect while you're alive or after you die, and whether you're setting it up for a specific purpose. Let's explore the different types of trusts.

Revocable and irrevocable trusts differ in how much control over the assets the grantor gives the trustee and beneficiaries. Essentially, a revocable trust can be changed or even canceled while an irrevocable trust is meant to be permanent. 

A revocable living trust is one you can modify or revoke at any time. The assets you put into it—such as real estate, financial accounts, securities, business interests and personal property—are still under your control even though they're legally owned by the trust. After you pass away, the trust distributes the assets to your beneficiaries. 

• Revocable trust pros: You still own the assets, and you can adjust the trust as your life circumstances change. This can be vital if you go through a major change, such as expanding your family, getting married or divorced, or starting a business.
• Revocable trust cons: Because the assets are still under your control, they're still subject to regular income tax. Depending on the size of your estate, they also may be subject to estate tax. Revocable trust assets also can be accessed by creditors and are counted when determining eligibility for needs-based programs like Medicaid or Supplemental Security Income.

An irrevocable trust isn't meant to be changed or revoked. The assets you put into it no longer belong to you as the grantor; they are owned by the trust until the conditions for distribution to the beneficiaries are met.

• Irrevocable trust pros: Not owning the assets can shift your tax liability during your lifetime and can reduce the size of your estate. It also can provide protection from creditor claims, and the assets may not count for you or your beneficiary when qualifying for governmental assistance.
• Irrevocable trust cons: Making changes or dissolving the trust generally can't be done without a court order or the explicit consent of the trustee and all beneficiaries, although it depends on state law and the terms of the trust. You also can't name yourself as the trustee, so you have to entrust management and control of the assets to someone else.

An attorney experienced in trusts can advise whether a revocable or irrevocable trust is better for you.

A living trust, also known as an inter vivos trust, becomes active while the grantor is still alive. This trust allows the settlor to transfer assets like investments, real estate or money into the trust, but they can still use and manage those assets if the trust is revocable.

In contrast, a testamentary trust is established through a will and takes effect after the grantor has died. Because your will can be changed anytime during your lifetime, the terms of a testamentary trust also can be modified before your death. However, once the grantor passes away and the will is executed, the testamentary trust becomes irrevocable.

Keep in mind that wills and trusts are different types of estate planning tools. You can have a trust without a will and vice versa. It's important to understand what you want your trust to accomplish and how it coordinates with your will, powers of attorney and other estate documents.  

A wide variety of specialty trusts can help you achieve your financial goals, including protecting your assets, minimizing your taxes, supporting causes you care about and more. Trusts can be designed to protect your assets, limit estate and inheritance taxes, provide for family and other dependents, and pass down real estate, retirement accounts and business interests.

Here are some of the more common kinds of specialty trusts and what they offer. 

• Credit shelter trust. Through this estate planning strategy, an estate is divided into two parts. One portion can be placed into trust or distributed outright to a surviving spouse, where they will later use their estate tax exemption to shelter the assets from estate tax. The second portion will be placed in trust for the benefit of other heirs, called a credit shelter trust to make sure that some of the estate tax exemption of the first spouse to pass away is used. The surviving spouse will often receive income from both trusts. 
• Dynasty trust. This long-term and irrevocable trust can help preserve wealth across multiple generations by reducing estate and generation-skipping taxes, as long as assets remain in the trust. 
• Generation-skipping trust. This trust allows grantors to transfer assets to beneficiaries who are at least two generations younger, such as grandchildren. Through this trust, assets will face fewer layers of estate tax over time, helping to preserve wealth. 
• AB trust. The AB trust is a revocable trust that can be used by married couples to minimize their estate taxes. To form the trust, each spouse places assets and then names a final beneficiary, which can be anyone who isn’t the other spouse. The trust splits into parts when the first spouse dies: Trust A holds assets for the benefit of the survivor trust, and trust B holds the deceased spouse’s half of the trust property. 
• Disclaimer trust. A disclaimer trust allows a surviving spouse to disclaim ownership of assets after the first spouse's death. These disclaimed assets then flow into the disclaimer trust without being taxed.
• Qualified domestic trust (QDOT). QDOTs are designed to allow the surviving spouse of a non-U.S. citizen to benefit from the marital estate tax exclusion in the deceased spouse’s estate, typically only available to U.S. citizens.

• Special needs trust. A special needs trust works to preserve a beneficiary’s eligibility for needs-based government benefits, such as Supplemental Security Income and Medicaid. 
• Spousal lifetime access trust (SLAT). A spousal lifetime access trust allows a spouse to transfer property to an irrevocable trust for the benefit of the other spouse. The property transferred to a properly drafted SLAT is then not included in the grantor's estate or their spouse's estate when they pass away, so neither spouse pays estate taxes on the transferred assets when they die.
• Spendthrift trust. This trust restricts a beneficiary’s access to the assets or income held within a trust. These trusts can be an important tool for grantors who are concerned about the financial judgment of a loved one. 
• See-through trust for retirement accounts. These trusts allow individuals to pass assets from an individual retirement account to beneficiaries through a trust. Beneficiaries then can withdraw money from the account over time, minimizing taxes and allowing the money to grow. 
• Bare trust for minors. With a bare trust, a grantor allows assets to be held by a trustee on behalf of a beneficiary or beneficiaries who are younger than 18. The trustee holds the property for the absolute benefit of a beneficiary, acting as a nominee for the beneficiary before they reach adulthood. 

• Charitable remainder trust. You fund a charitable remainder trust, also known as a CRT, with assets such as cash or other liquid investments, or illiquid holdings like real estate or business interests. The trust pays you income from the assets during your life, and you can choose a family member or charity to receive the income you don’t need. After you pass, any remaining assets will go to your designated charity. 
• Charitable remainder annuity trust. Also known as a CRAT, this trust is a type of charitable remainder trust that provides a fixed stream of income to you or other beneficiaries for life or a set term. After that, the remaining assets are distributed to one or more designated charities.
• Charitable lead trust. With a charitable lead trust, a grantor funds a trust with assets, then defines the time period the trust will last. The trust then makes regular payments from the assets to one or more charitable beneficiaries for that time period. The remaining funds, if any, at the end of the time period are then distributed to beneficiaries chosen by the grantor.
• Irrevocable life insurance trust. Commonly shortened to ILIT, these trusts hold life insurance policies, and the grantor can add conditions about how the death benefit is used. The insurance funds are typically not included in the insured’s federal taxable estate.
• Crummey trust. This irrevocable trust allows an individual to provide financial assets to beneficiaries without reducing the individual’s lifetime gift tax exemption amount. That’s because the assets are transferred to the trust, not directly to beneficiaries. 

• Property trusts. With these trusts, you transfer real estate held by title or deed into the trust rather than holding it personally. These structures can simplify property management, provide privacy and make it easier to transfer ownership to beneficiaries. Putting your house into a trust may help avoid the probate process and provide potential tax benefits. 
• Business trusts. Trusts can serve multiple purposes in business. A revocable trust can hold a grantor’s business interests, such as shares of a limited liability company while allowing the grantor to maintain management control. An irrevocable trust can hold business assets for estate planning or creditor protection, depending on timing and legal compliance. Trusts also are useful in succession planning, helping families maintain ownership across generations or holding stock on behalf of employees.

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Your trust is a legal arrangement that may require its own tax identification number, separate from your Social Security number, especially if it holds income-generating assets or is irrevocable. To fund the trust, you must officially transfer assets to it, which means changing titles, deeds, account agreements and other ownership documents for the assets to the name of the trust.  

Once that happens, the trustee is responsible for the assets. They are in charge of record-keeping and may be required to provide regular accounting reports. It's their duty to file taxes for what the trust owns. As they manage the trust, they are obligated as a fiduciary to act in the interest of the trust and its beneficiaries.

For all this effort, trustees are entitled to reasonable compensation, which can vary depending on complexity and involvement. The fees may be set out in the trust documentation or have certain requirements under state law. If a trustee fails to carry out their duties properly, beneficiaries can seek a court’s review and request that the trustee be removed and replaced.

With the wide variety of trusts available for estate planning, how do you know which trust strategy will be the right fit for your situation? Some key decision factors include your goals, how much control you want to keep over your assets, potential tax impacts and the needs of your family.

Your individual state laws and court rules also should factor into your decision. Some states levy estate taxes at a much lower minimum than the federal limits, which can impact how much you decide to leave your heirs and beneficiaries. Court probate rules also vary by state, including how long the process takes and whether a small estate must pass through probate. 

Because of the complex nature of trusts and their potential impact upon your estate plan, it is important to consult an attorney when establishing one.

You also may want to consider working with a professional trustee, who you can appoint to manage your trust. They can offer guidance as you work with your financial advisor, estate attorney and tax professional to create a trust. Once the trust is in place, they take care of administration of the assets, bills, disbursements and taxes.

Careful planning with trusts can help minimize the estate taxes you may owe. Here are some things to think about when setting up trusts or gifting assets to your loved ones. 

Most estates won’t need to pay federal estate tax, which only applies to estates worth more than an inflation-adjusted amount. That amount, known as the lifetime exclusion, is currently at $13.99 million for 2025 and will rise to $15 million in 2026. The threshold is doubled for married couples. 

If your estate is large enough to trigger federal taxes, there are steps you can take to reduce the size of your taxable estate. Through a gifting strategy, you can reduce your estate during your lifetime by gifting assets to loved ones, political organizations and charities. The annual exclusion amount per recipient in 2025 is $19,000, or $38,000 for couples. If your annual gift exceeds the exclusion, then that amount will be deducted from your lifetime exclusion.  

Gifting also can help limit your estate’s exposure to an inheritance tax, currently levied by six states. The amount of the tax depends on the size of the estate and the heir's relation to the deceased person. If you live or own property in one of these states, gifting assets during your lifetime can minimize the tax impact.

Here’s an example of how gifting exclusions work: Assume you're unmarried and give $100,000 to your adult child in 2025. Because the gift exceeds the annual limit, you must file a gift return and your lifetime exclusion is reduced by $81,000—the amount by which your gift exceeds the annual exclusion. Your child doesn’t have to pay taxes on the gift.

Estate planning, including the use of trusts, isn’t just for wealthy individuals. A trust can help ensure your wishes are carried out after you're gone, minimize tax liability and take some administration burden off your loved ones. 

Connect with a Thrivent financial advisor to discuss how trust and estate plans fit with your overall financial plans and for guidance on how your assets can make the biggest impact during and after your lifetime.

Passing down your assets after you die can trigger taxes. For a large, multimillion-dollar estate, your heirs and beneficiaries may have to pay federal estate taxes. Many states levy estate taxes on smaller estates, and some states charge an inheritance tax. Planning to pass down your estate through creating trusts and other methods can help limit the tax impact to you and your loved ones. 

Trusts can help you control and transfer your assets in many ways while you're alive and after you pass away. One example of a trust is a special needs trust, which helps ensure your loved one has assets to meet their financial needs but doesn't directly own or manage them. Another use case is trust designed to pay for someone's higher education, where a trustee strictly controls the disbursement of the trust's assets until the person graduates. 

Legacy planning is the process of deciding how to distribute your assets after you die. Estate planning is developing the strategy of how you distribute those assets. That process focuses on asset protection, minimizing inheritance or estate tax responsibilities through creating a will or trust. 

Starting Jan. 1, 2026, the amount you can pass on to your loved ones without estate or gift tax is permanently set at $15 million per person, or $30 million for a married couple. Many states levy estate taxes on estates at lower dollar figures, and six states charge some heirs an inheritance tax.