Trusts 101: What Type Is Right For You?

Trusts are an important part of an estate plan, providing a powerful tool for managing, distributing, and protecting assets. With so many options, choosing the right one can feel overwhelming. The best trust for you depends on your goals — whether it’s avoiding probate, minimizing taxes, protecting assets, or providing for loved ones. Below, we break down common types of trusts and their purposes in simple terms.

Revocable vs. irrevocable trusts

Trusts can be structured to be either revocable (changeable) or irrevocable (unchangeable) during your lifetime. The first decision is which one is right for you.

Revocable trust

A revocable trust (sometimes called “revocable living trust”) allows you to stay in control of your assets while you’re alive and helps your heirs avoid probate when you pass away. You can change or revoke it at any time. It’s great for estate planning, but it doesn’t offer asset protection from creditors or reduce estate taxes.

Subtrusts under a revocable trust

A revocable trust can include instructions to create subtrusts at your death to better protect and manage assets for your family. You can include the terms of the subtrusts in your revocable trust document. This way, you won’t need to create new trusts when you pass away.

A qualified terminable interest property trust (QTIP) can be set up under your revocable trust. It provides income and support to a surviving spouse. At the same time, it helps keep assets for your children, especially those from a previous marriage.

Credit shelter trust (family trust): Can be created under your revocable trust. It uses your estate tax exemption to pass assets to your heirs while providing for your surviving spouse without adding to their taxable estate.

At your death, or the death of your surviving spouse, additional subtrusts can be formed for the benefit of your heirs. If you worry about a beneficiary spending their inheritance too quickly or are concerned about the potential for future creditors or divorcing spouses, a discretionary trust or spendthrift trust gives a trustee control over distributions.

You can specify when and how the money is used — for example, allowing funds only for health, education, maintenance, and support. They can be designed to protect inheritance from creditors and divorcing spouses, while offering a level of flexibility to support your heirs during their lives.

Instead of giving assets outright when your heirs reach a certain age, a lifetime trust, perhaps with your responsible heirs as their own trustees, keeps the assets protected inside a trust for their entire life. If properly structured to be fully generation-skipping transfer (GST) tax exempt, the trust assets can pass down to your grandchildren and later generations without being subject to estate tax at each generation.

When to consider a revocable trust

• Flexibility and control: You wish to maintain control over your assets during your lifetime and have the ability to modify the trust’s terms as needed.
• Avoiding probate: You aim to ensure your assets are distributed swiftly and privately after your death, bypassing the public probate process.
• Protection in case of incapacitation: You seek a method to manage your assets if you become incapacitated.
• Privacy: You want to keep your assets and their distribution confidential.
• Estate size: Your estate is likely below the federal estate tax exemption and state estate tax thresholds.

Irrevocable trust

Once created, irrevocable trusts generally can’t be changed. However, in exchange for giving up some control, you may potentially benefit from asset protection and estate tax advantages.  Irrevocable trusts are often used when protecting wealth or transferring it efficiently to the next generation is a primary goal.

If your estate is large enough to face federal estate taxes (currently affecting estates over $13.99 million per person in 2025), special irrevocable trusts can help minimize the tax burden. These trusts remove certain assets from your taxable estate while still benefiting your spouse and heirs.

Spousal lifetime access trust (SLAT) and intentionally defective grantor trust (IDGT) are two types of gifting trusts. Gifting trusts move assets out of your taxable estate while making the assets available for the benefit of your spouse (SLAT) or your heirs (IDGT). Gifting trusts also allow gifted assets to your spouse and heirs to grow outside of your taxable estate.

Irrevocable life insurance trust (ILIT): Owns life insurance outside of your taxable estate. The death benefit can provide estate and income tax-free liquidity to your heirs.

Grantor retained annuity trust (GRAT): Transfers future appreciation of assets to heirs at little or no gift tax cost by paying you back a fixed annuity first.

Similar to the lifetime trust approach for heirs under the revocable trust, some of these irrevocable trusts can also be structured to continue for your heirs in a generation-skipping transfer tax exempt lifetime trust, with the same creditor and divorcing protection, ensuring the assets pass down from generation to generation protected and without future estate taxes.

When to consider an irrevocable trust

• Asset protection: You want to safeguard your assets from creditors, lawsuits, or other legal claims.
• Estate tax planning: You have a substantial estate and wish to reduce or eliminate estate taxes.
• Medicaid eligibility: You wish to qualify for Medicaid benefits.
• Long-term planning: You want to ensure the long-term protection of assets for beneficiaries.

Supporting charitable giving

If charitable giving is part of your goals, two main types of charitable trusts can help you give back while also creating tax benefits:

Charitable remainder trust (CRT): You or your beneficiaries receive income from the trust for life (or a set number of years), and whatever remains goes to charity. You receive an immediate income tax charitable deduction and can avoid capital gains tax on appreciated assets placed in the trust.

Charitable lead trust (CLT): The charity receives income from the trust for a set period of time, and the remainder goes to your heirs. This trust can reduce estate or gift taxes and is a good way to pass wealth to family at a reduced tax cost.

Both charitable trusts offer flexible ways to support causes you care about while also benefiting your family and reducing taxes.

Which trust is right for you?

Choosing the right trust depends on your specific goals. If you’re unsure, a revocable trust is often a great starting point. However, if you have unique needs like tax planning, asset protection, or charitable giving, you might benefit from a more specialized trust.

Consulting with an estate planning attorney and your wealth advisor can help tailor a trust to your unique situation, ensuring your plan is both effective and aligned with your long-term goals.

At Mercer Advisors, we can integrate estate planning and trustee services into your overall wealth plan. Many wealth management firms offer estate planning services, but relatively few have in-house estate planning solutions. At Mercer Advisors we use our in-house solutions to integrate estate planning into your total financial picture.

Our estate strategists work directly with our wealth advisors, tax and trust specialists, and financial planners to fulfill a singular goal: to protect your loved ones and the wealth you’ve worked hard to build.

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Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice is provided through select third parties unaffiliated to Mercer Advisors. Trustee services are offered through select third parties with which a client would engage directly, as such additional fees may apply.