First, let’s discuss the parties or positions in a trust. To form a trust, you need at fill at least three positions. Nowadays, you can have as many as two more:

One or more Settlors/Grantors/Trustors/Trust Makers. The person (or persons) who creates the trust, whether during his or her lifetime or at death. In Wyoming and Utah, Settlor or Grantor is the preferred term, though the other terms are used as well. The terms mean the same thing. Utah’s definition reads, “’Settlor’ means a person, including a testator, who creates . . . a trust.” In contrast, Wyoming’s definition reads, “’Settlor’ means a person, including a testator, grantor or trust maker, who creates . . . a trust.”

One or more Trustees. A fiduciary (either an individual or an entity) named in the trust document who holds legal title to trust property for the benefit of the . . .

One or more Beneficiaries. Person or persons, entity or entities, charities or otherwise, for whose benefit the settlor created the trust in the first place. The beneficiary may have a present, future, vested, or contingent interest in trust property. Beneficiaries may be income or remainder beneficiaries. Settlors can be beneficiaries of their trust.

Trust Protector. Someone named in the trust other than trustee with powers granted by the trust document, often including a limited power to remove the trustee, appoint a replacement, add beneficiaries, and maybe modify the trust. In other words, a trust protector is someone a trustee should pay attention to. Modern trusts often have trust protectors (and advisors, see below) to add flexibility to the trust.

Trust Advisor. Though the term is sometimes used interchangeably with trust protector, a trust advisor is more of an advisor than an enforcer, guiding the trustee in the exercise of her powers. That said, the place to define these two terms is in the trust agreement.

First, here are three important definitions and four basic types of trusts, especially as to the taxation of trusts:

Complex trust. A trust that either retains all current income or distributes corpus or makes distributions to charitable organizations.

Simple trust. As described in tax law, a trust that must distribute all income at least annually and which doesn’t provide for charitable distributions.

Grantor trust. A trust over which the settlor (aka the grantor) retains power to revoke or to control trust property. Consequently, the settlor/grantor is taxed on trust income. Most living trusts are grantor trusts.

Living trust. Also known as an inter vivos trust, a living trust is one established and funded during the settlor’s lifetime as opposed to a testamentary trust (see below), which comes into being upon the settlor’s death. A living trust can be either revocable or irrevocable. The settlor of a revocable living trust is typically also the initial trustee of the trust.

Revocable trust. A living trust over which the settlor retains the power to revoke the trust.  

Irrevocable trust. A trust over which the settlor retains no right to revoke. Irrevocable trusts are generally used to remove assets out of the taxable estate of the settlor. Once a settlor dies, his or her revocable becomes irrevocable. Likewise, once the creator of a testamentary trust dies, his or her trust is irrevocable.

Testamentary trust. A trust created by will and which comes into being upon the death of the testator or maker of the will.

Now, in no particular order, here’s a brief summary of many of the trusts in use today:

Charitable trusts. A trust for the benefit of a charity (government, educational, religious, and similar institutions). There are a variety of charitable trusts, including a charitable lead trust (CLT)—defined as a trust for a fixed period, during which the charity receives the trust income and after which, the remainder goes to a non-charitable beneficiary—or a charitable remainder trust (CRT), which essentially reverses those roles.

Irrevocable life insurance trust (ILIT). An irrevocable trust designed to own life insurance, so the insurance remains outside the insured’s estate and free of estate tax.

Pet Trust. A trust established to take care of the settlor’s pets in the event of the settlor’s death or disability.

Firearms or NFA Trust. A trust to hold firearms generally and National Firearms Act firearms specifically. Such trusts allow for the sharing of NFA firearms without violating transfer rules governing NFA firearms.

Special Needs Trust (SNT).  A trust designed to hold assets for the benefit of a beneficiary whose disabilities may allow the beneficiary to receive public assistance for medical and other care expenses.

Standalone Retirement Trust (SRT).  A trust designed to receive “qualified retirement accounts” like IRAs, 401(k)s, etc. It can be either revocable or irrevocable, and it’s designed to allow trust beneficiaries to defer income tax on the account for as long as possible—i.e., stretch the IRA. SRTs can be either conduit trusts (distributions flow through them and out to the beneficiaries) or accumulation trusts (any trust that is not a conduit trust).

Grantor Retained Annuity Trust (GRAT). A special type of irrevocable trust. The settlor/grantor establishes the trust, puts property in, and takes back an annuity (calculated as a dollar amount) for a specific amount of time based on the value of the property in the trust.

Intentionally Defective Grantor Trust (IDGT). An irrevocable trust that removes the value of the trust assets out of the settlor’s estate but allows the grantor/settlor to continue to be treated as the owner for income tax purposes. A big advantage of IDGTs is that grantor/settlor can add value to the trust by paying the income tax due on trust income without those tax payments being treated as additional taxable gifts to the trust.

By-pass or Credit Shelter Trust. Also known as the B Trust that holds that part of the deceased spouse’s estate that is applied against the deceased’s applicable exclusion amount, thus protecting it from estate taxes.

Marital Trust. Also known as the A Trust, this trust holds the portion of the deceased spouse’s estate that qualifies for the unlimited marital deduction. That portion will later be included in the surviving spouse’s taxable estate. The Marital and Credit Shelter Trusts are generally created by the trustee of the settlor’s Revocable Living Trust or Testamentary Trust upon the settlor’s death.

Qualified Personal Residence Trust (QPRT). This trust works like a GRAT except that the property transferred into the trust is the Settlor’s personal residence. The Settlor retains the right to live in the home for a specified number of years. At the end of the term, the Settlor must move out or begin paying rent to the trust, which goes to beneficiaries entitled to the trust property after the initial term.

Qualified Domestic Trust (QDOT). A form of trust that allows a taxpayer whose surviving spouse is a non-citizen to claim the marital deduction. To qualify, 1. at least one U.S. citizen must be a trustee, 2. the trust can’t allow distributions of principal unless the U.S. trustee has the right to withhold estate tax on the distribution, and 3. sufficient trust assets must be held in the U.S., among other things.

QTIP Trust. A trust that can hold qualified terminable interest property, property the settlor sets aside for the surviving spouse and which qualifies for the marital deduction.

Domestic Asset Protection Trust (DAPT). An irrevocable trust that allows a settlor to set aside assets in trust and protect those assets from creditor claims. The DAPT is established under the laws of states with favorable asset protection laws—Nevada, Alaska, South Dakota, Wyoming, and Utah, for example.