Here are some general types of trusts that are usually confined to those requiring a bolder implementation of estate planning, either because of certain business activities in which they are participating, and/or the degree of wealth they may wish to protect from certain potential hazards.

Irrevocable trusts cannot be terminated after they are finalized. This sets them apart from revocable trusts which can be terminated, at least until they become irrevocable at the death of the trust maker (the grantor). When talking about trusts, the term “living” means that the trust goes into effect during the grantor’s life.   So, an irrevocable living trust is a trust that 1) goes into effect during the grantor’s life and 2) cannot be revoked. An exception to these general rules is a “testamentary” trust, which is made during a grantor’s life, but does not go into effect until the grantor’s death.

  1. General Trust Terminology  

These terms can get confusing, so here is a breakdown:

Term Definition
Revocable trust A trust that can be revoked.
Revocable living trust A trust that can be revoked and that takes effect during the life of the grantor. Becomes irrevocable at the death of the grantor. Usually made to avoid probate.
Irrevocable trust A trust that cannot be revoked.
Irrevocable living trust A trust that cannot be revoked and that takes effect during the life of the grantor.  Usually made to transfer wealth, protect assets, or reduce taxes.
Testamentary trust A trust created during the life of the grantor, but that takes effect at the grantor’s death.  Usually made as part of a will. For example, a child’s trust is made to name a trustee for property left to a minor.
  1. Types of Irrevocable Trusts

There are dozens and dozens of types of irrevocable trusts made for different purposes.   The two most common reasons to make an irrevocable trust are 1) to reduce taxes, and 2) to protect property.

  1. Irrevocable Trusts to Reduce Taxes

Grantors most often use irrevocable trusts to avoid or reduce taxes.  Here are examples:

  • Bypass Trusts – A trust used by spouses to reduce estate taxes when the second spouse dies. When the first spouse dies, the bulk of his or her property goes into the trust. The surviving spouse can use trust property (and income from trust property), but he or she never owns it. So, when the “surviving” spouse dies, that the first spouse’s property is not included in his or her estate.
  • QTIP Trusts – A trust used by couples to postpone the payment of estate taxes until the second spouse dies.
  • QDOT Trusts – Like QTIP trusts, but used when one spouse is a noncitizen.
  • Charitable Trusts – A trust designed to reduce income and estate taxes through gifts to charity.   Three types of charitable trusts are:
    • charitable remainder trusts – You put property in a trust, name a charity to be the final beneficiary, and then name someone else to receive income from the trust for a set amount of time.
    • charitable lead trusts — You put property in a trust, name a charity to receive income from the trust for a set amount of time, and then name someone else as a final beneficiary.
    • pooled income trust – You pool your money with other trust makers and receive trust income for a set time. For pooled charitable trusts, a charity is the trustee and the final beneficiary.
  • Generation-Skipping Trusts – These trusts are designed to reduce estate taxes for wealthy families.   The final beneficiary is a grandchild or group of grandchildren. The child is usually an income beneficiary, but never owns the property, so that the trust property is not subject to estate tax when the child dies. This type of trust is subject to a generation skipping transfer tax.
  • Life Insurance Trusts – These trusts reduce estate taxes by removing the proceeds of life insurance from a taxable estate.   Instead, the trust owns the insurance policy. The beneficiary of the policy can be anyone, but the trustee must be someone other than the previous owner of the policy.   The grantor cannot have any control over the policy once the trust is made, and the trust must exist for at least three years before the grantor’s death.
  • Grantor-Retained Interest Trusts (GRATs, GRUTs, GRITs, and QPRTs) – These trusts also reduce estate taxes by removing property from a taxable estate.   The trust maker puts property into the irrevocable trust and names final beneficiaries, but retains some interest in the trust for a set amount of time. That interest might be a fixed annuity from the trust (GRAT), a variable annuity (GRUT), trust income (GRIT), or the right to live in the trust property (QPRT). When that set time period is over, the final beneficiaries own the property outright, and the IRS will value the gift at the time of the creation of the trust. The grantor must outlive the terms of the trust, or no savings will be created. 
  1. Irrevocable Trusts for Protecting Property

Irrevocable trusts can also be used to meet other goals, such as to protect assets from being squandered or to protect the assets of a person with a disability.

  • Spendthrift Trusts— Spendthrift trusts allow you to protect (and control) gifts that you give to those who may not be able to manage the money themselves.   You put property into a trust, and the trustee (which can be you) doles out money to the beneficiary according to the terms of the trust.   The beneficiary cannot access trust property on his or her own, so it is protected from the beneficiary’s creditors, at least until payments are made directly to the beneficiary.
  • Special needs trusts —A special needs trust provides financial support for a person with special needs, without affecting his or her qualifications for government benefits. Property is put into a trust for the benefit of a person with special needs, often by a parent or other relative. The terms of the trust allow the trustee to use trust funds to buy certain things for the beneficiary, but because the beneficiary never owns trust property, it is not considered to be an asset when he or she applies for government benefits.
  • Asset Protection Trusts–The only way the trust assets could be protected from creditors of the creator of the trust (hereafter “Settlor”), was for the Settlor to give up complete control of and benefit from the trust and the trust assets. If the Settlor retained the power to serve as trustee of the trust, amend the trust, receive distributions from the trust, or to derive any benefit from the trust, creditors of the Settlor could attach assets in the trust to satisfy debts of the Settlor.

Traditionally asset protection is afforded to beneficiaries of a trust through inclusion of a “spendthrift provision” which specifically prohibits creditors from making claims against a beneficiary’s interest in the trust and prevents the beneficiaries from transferring or pledging their interests in the trust.

However, the creditor protection is generally unavailable to the creator of the trust. If an individual establishes a trust of which he or she is also a beneficiary, a “self-settled trust”, the trust is generally ignored for purposes of the creator/beneficiary’s debts and liabilities.

An asset protection trust is a trust that protects the trust assets from creditors and liabilities of the beneficiaries. That is, as long as the assets are in the trust they are not the personal property of the beneficiaries and therefore, not subject to the beneficiary’s debts.

Under Nevada law for example, if a creditor was a creditor of the Settlor    at the time the Settlor made the transfer to a NAPT, the creditor must commence an action to challenge the transfer within the later of (a) two years after the transfer, or (b) six months after the creditor discovers or reasonably should have discovered the transfer.

A creditor who was not a creditor of the Settlor at the time the Settlor made the transfer to a NAPT must commence an action to challenge the transfer within two years of the transfer. The act that starts the statute of limitations running is the transfer of assets. Therefore, each time assets are transferred to the NAPT, a new transfer has occurred and the statute will begin to run on a claim against that asset.

Finally, even if the statute of limitations does not bar the claim, the creditor is required to show that the transfer was a “fraudulent conveyance.” A fraudulent conveyance is a transfer of an asset with the intent to hinder, delay or defraud the creditor. The intent to hinder, delay or defraud creditors can be inferred if the transfer renders the transferor insolvent. Therefore, the Settlor should not transfer all of his asset into a NAPT.

What makes the NAPT unique is that the Settlor can also be a beneficiary of the trust. The only limitation is that the trustee cannot be required to make distributions to the Settlor. While this can be a limitation to the Settlor, it is outweighed by the benefits of the powers and controls the Settlor can retain and still have creditor protection from the trust.




A spendthrift trust is a kind of trust that limits or altogether prevents a beneficiary from being able to transfer or assign his interest in the income or the principal of the trust.  Spendthrift trusts are sometimes used to provide for beneficiaries who are incompetent or unable to take care of their financial affairs.

If a trust incorporates a spendthrift clause, the beneficiary is precluded from transferring his interest in either income or principal. Accordingly, the beneficiary’s creditors will not be able to reach the beneficiary’s interest in the trust.

The protection of the spendthrift trust extends solely to the property that is in the trust. Once the property has been distributed to the beneficiary that property can be reached by a creditor, except to the extent the distributed property is used to support a beneficiary. If a trust calls for a distribution to the beneficiary, but the beneficiary refuses such distribution and elects to retain property in the trust, the spendthrift protection of the trust ceases with respect to that distribution and therefore the beneficiary’s creditors can now reach trust assets.

A trust is called “discretionary” on the other hand, when the trustee has discretion (as to the time, amount and the identity of the beneficiary) in making distributions. Because the trustee is not required to make any distribution to any specific beneficiary, or may choose when and how much to distribute, a beneficiary of a discretionary trust may have such a tenuous interest in the trust so as not to constitute a property right at all. If the beneficiary indeed has no property right, there is nothing for a creditor to pursue. The statutes that follow this line of reasoning essentially provide that a trustee cannot be compelled to pay a beneficiary’s creditor if the trustee has discretion in making distributions of income and principal to begin with.

If the trustee of a self-settled trust (where the creator of the trust is also a beneficiary of the trust), has any discretion in making distributions, then the creditors of the settlor (creator) may reach the maximum amount that the trustee may distribute in his discretion to that particular settlor-beneficiary.