A Look at Trusts, the Different Types,
and How Trusts Complete a Good Estate Plan
RICHARD B. SCHNEIDER
OREGON ESTATE PLANNING ATTORNEY
Despite knowing how important it is to create a comprehensive estate plan,
studies show that over half of all Americans do not have one. People give a
wide variety of reasons why they have yet to create an estate plan with
many of those reasons centering around the fact that people don’t
understand the process or the laws relating to wills, trusts, and estates.
The old adage “knowledge is power” applies here because the more you
already know about estate planning the more likely you will be to take the
initiative and get started on your plan. Though your Last Will and
Testament will likely be the foundation of your overall plan you may choose
to include one or more trusts in your plan as well.
A trust is a separate legal entity. The purpose of a trust is to manage and
protect assets that are intended for the benefit of a third party, or
beneficiary. A trust requires five basic elements for creation:
A grantor – the person who creates the trust
A trustee – the individual, or company, that manages and oversees
the trust. The trustee has numerous duties and responsibilities such
as investing trust assets, payment of taxes, recordkeeping,
distribution of assets to beneficiaries, and communication with
Beneficiaries – you must designate one or more beneficiary. A
beneficiary may be a person, an organization, a charity, or even a
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Terms – trust terms are created by the grantor and may include
almost anything as long as the term is not illegal or impossible to
Funding – you must transfer assets to be used to fund the trust into
the trust. Assets may be cash, stocks, property, or almost anything
else of value.
The reasons for including a trust in an estate plan are varied and
numerous; however, some of the common reasons why a trust is a popular
addition to an estate plan include:
Probate avoidance – a properly constructed trust allows the assets
held in the trust to avoid the probate process, making them
immediately available to beneficiaries.
Tax advantages – a trust can help decrease your taxable estate at
the time of your death, thereby lowering the amount of gift and
estate taxes due from your estate.
Continued control – a trust allows the grantor to create trust terms
that will, in effect, allow a certain amount of continued control over
the use of the assets by the beneficiaries.
Staggering inheritance – a large inheritance left to a young, or
financially naïve beneficiary, can be a huge mistake. A trust allows
you to stagger the gift over many years, decreasing the likelihood
that the gift will be squandered.
Guarding assets for minors – gifts cannot be left to minors.
Creating a trust is an excellent way to guard the gift and grow the
funds until the intended beneficiary is old enough to legally benefit
from the gift.
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There are four basic types of trusts that define how the trust will operate
and how it will be taxed. In essence, all trusts start from here. Those
important types are:
Testamentary – a testamentary trust is a trust that does not become
effective until your death. Typically, you will include instructions in your
Last Will and Testament that “activate” the trust. Parents of minor children
often create a testamentary trust because it will only be needed if the
parent dies before the child reaches the age of majority.
Inter Vivos (Living) – an inter vivos, or living, trust becomes effective as
soon as all of the formalities of creation are completed and assets are
transferred into the trust to fund the trust.
Revocable – a revocable trust is a trust that can be changed by you, the
grantor, at any time and for any reason. You can add or delete a
beneficiary, increase or decrease assets, replace the trustee, or even
terminate the trust whenever you wish.
Irrevocable – as the name implies, an irrevocable trust is one that cannot
be changed once effective. Assets transferred into an irrevocable trust
cannot be removed once transferred and are legally no longer owned by
the grantor. While there are some exceptions preventing changes to an
irrevocable trust (for example a court can terminate or change an
irrevocable trust under limited circumstances), you should take great care
when creating an irrevocable trust and operate under the assumption that
once created it is written in the proverbial stone.
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Trusts have evolved considerably over the last century. Where they
were once used primarily by wealthy families as a mechanism to
pass down family wealth from one generation to another, trusts are
now used by the average estate planner for a wide variety of
purposes. Through the careful creation of trust terms you may tailor
your trust to meet your own specific goals; however, there are also a
variety of specialized trusts that may already be designed to fit your
goals. Some of the more popular specialty trusts include:
Asset Protection Trust – also referred to as a “spendthrift trust” this
type of trust can
protect the trust
assets from both
the poor financial
habits of the
claims. If you have
an adult child, for
instance, who has
struggled with an
and has been less
than careful with
finances as a result, you might want to consider creating a spendthrift trust
so that the beneficiary cannot squander the assets and creditors of the
beneficiary cannot get to the assets.
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Special Needs Trust – also referred to as a “Supplemental Needs Trust”,
this type of trust allows you to provide supplemental financial assistance
for a special needs beneficiary over and above the assistance provided by
government assistance programs without creating a situation where the
“gift” works to disqualify the beneficiary from these programs.
Charitable Trust – a charitable trust allows you to gift to a charity that is
important to you. Within this category are charitable remainder and
charitable lead trusts. One allows you to gift first to a charity and then gift
the remainder to a non-charitable beneficiary while the other provides a
gift to a non-charitable beneficiary first with
the remaining assets gifted to the charity.
Pet Trust – even the family pet can
benefit from a trust. Pet trust lets you
decide how your pet will be cared for in the
event you predecease him or her. It also
ensures that sufficient funds will be
available for your pet’s care when the time
Generation Skipping Trust – this is a trust that is specifically designed
to protect assets that are exempt from the generation skipping tax. It is
often used by families to pass wealth down to future generations with as
few tax consequences as possible.
As you can see, a trust can be an extremely beneficial addition to any
estate plan. Consult with your estate planning attorney to decide which
types(s) of trust will work best in your overall estate plan to reach your
goals and objectives.
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American Bar Association, Trusts
U.S. Trust, Trust Basics
Living Trust Network, Types of Trusts
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About the Author
Richard B Schneider
Before devoting his professional efforts primarily to estate
planning, Mr. Schneider spent over fifteen years working
on Wall Street for major law firms and investment banks.
After graduating from law school, he practiced general civil
law in New York City for five years, specializing in business
transactions, financings and corporate matters. He also
represented major investment banking firms in mortgage
trading and real estate-related matters. Among his clients
were international shipping companies, commercial and
investment banks and institutional lenders, including
General Electric Capital Corporation, Salomon Brothers and
For the next ten years Mr. Schneider served as Senior Vice President at the investment
banking firm of Kidder, Peabody, where he managed outside legal counsel for a variety
of large financial transactions between major institutions. He played a central role in the
creation of Kidder, Peabody’s mortgage trading subsidiary and advised and executed
transactions with insurance companies, pension funds and government agencies,
including the Resolution Trust Company.
In 1996 Mr. Schneider established a residence in Portland, Oregon and began his law
practice there in 1997. He has made a long-term commitment to providing first-class
estate planning legal services to families and individuals within the Portland
metropolitan area and the surrounding SW Washington region. His motivations for
moving to the Northwest were several: the natural scenic beauty of the Northwest
landscape, the clean air and streets, the healthy, diversified economy and the overall
high quality of life. Mr. Schneider is very grateful for the warm reception he has received
from Portland/Vancouver and is pleased to have become a respected member of the
Portland/Vancouver legal and business community.
Mr. Schneider is a member of the American Academy of Estate Planning Attorneys, the
National Academy of Elder Law Attorneys, the Estate Planning Council of Portland and is
on the board of directors of the the Rental Housing Association of Greater Portland. He
is admitted to practice in Oregon, Washington and New York.
Law Offices of Richard B Schneider, LLC
2455 NW Marshall St, Suite 11
Portland, OR 97210
Phone: (503) 241-1215
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