There are many ways to create an effective estate plan. Finding the best estate planning strategy that conforms to your specific circumstances and objectives is essential. Most estate plans will use either a trust or a will to accomplish this. If you are looking to go with a trust-based strategy, you will need to understand the different types of trusts available in order to select the one best for you. 

Living trust 

Generally created during your lifetime, a living trust allows you, the grantor, to revoke or alter the trust if you choose to. However, once you pass away, the trust will become irrevocable, meaning the terms of the trust cannot be changed. 

Testamentary trust 

Another type of trust you may want to consider is a testamentary trust which is created through a will. The trust will be automatically created upon your death through the legal language of the will document. 

Irrevocable life insurance trust 

One tactic you may want to consider for shielding generational wealth from estate taxes utilizing an irrevocable life insurance trust (ILIT). This strategy entails having your trust named as the beneficiary of your life insurance policy. In this case, the trust will also be the owner of the insurance policy while you are the insured. Your heirs would be the beneficiaries of the trust which will be funded by the proceeds of the life insurance policy once you pass away. 

Charitable remainder trust 

If you are looking to donate some of your estate to a charity while also saving on capital gains taxes, you may want to consider using a charitable remainder trust (CRT). This type of trust allows you to sell your appreciated assets which you have placed in the CRT without having to pay capital gains taxes. You should also know that CRT trusts are irrevocable which means changes to the trust will require the permission of the beneficiary which is the charity you want to benefit. 

Qualified domestic trust 

If you have a spouse who is not a citizen of the United States, you may want to think about using a qualified domestic trust. Usually, if your spouse is a U.S. citizen, they would qualify for 100% deduction on estate tax liabilities without limit. However, if your spouse is a non-citizen, he or she would not qualify for the marital deduction. The qualified domestic trust allows your non-citizen spouse to use the marital deduction on assets you have placed into the trust. 

Special needs trust 

It is possible that one of your beneficiaries is currently receiving some type of public assistance. In this case, you would not want the assets you leave to this individual to cause them to lose their qualification for public assistance, since these programs are based on an individual’s income and assets. A special needs trust allows a disabled person to keep receiving public assistance while still being able to obtain the fund from your estate after you pass away. 

Choosing the best trust for you 

Each type of trust will have different advantages and disadvantages, depending upon your specific situation. A knowledgeable and professional financial advisor can inform you of how each type of trust will impact your estate. This will assist you in choosing the best type of trust for your particular estate planning goals.


Any opinions are those of Independent Financial Services and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.