Thinking about the future means asking tough questions—like who will manage your home, finances, or personal treasures if something unexpected happens.
At Trusts and Estates Law Group (of North Carolina), we believe in guiding North Carolina families with compassion and clarity as they plan ahead. Trusts are a powerful tool in estate planning, but with several types to choose from, it’s important to understand your options.
In this article, we’ll break down the most common types of trusts in North Carolina to help you decide which one best fits your goals and values.
Common Types of Trusts
Trusts serve different purposes, from avoiding probate to setting up guidelines for loved ones. Knowing the basics of each trust helps you decide which might suit you best. Let’s explore how these trusts typically work and highlight a few advantages and potential drawbacks.
Revocable Living Trusts
A revocable living trust allows you to remain in full control of your assets during your lifetime. You can amend or even revoke it while you are alive, which makes it flexible if you want to change beneficiaries or add new property. This trust can simplify the process of transferring assets after you pass away by helping your family avoid probate court.
Some people also prefer a revocable trust for the additional privacy it provides. Unlike a will, a living trust typically does not become a public record. However, keep in mind that any assets held in a revocable living trust are not fully shielded from creditors while you are still living.
Irrevocable Trusts
An irrevocable trust is different, as any assets placed into it generally cannot be removed or modified without the beneficiary’s consent. Although that sounds restrictive, people often choose irrevocable trusts for tax and asset protection reasons. Because the trust, rather than you, owns the property, creditors may find it tougher to reach those holdings.
Families with significant assets sometimes create irrevocable trusts to help reduce estate taxes. Others might use it to protect a home or business from possible lawsuits. While the potential upsides are appealing, be sure you are comfortable with the fact that changes require permission from the beneficiaries or a court, depending on the circumstances.
Charitable Trusts
Charitable trusts benefit a nonprofit organization. This type of arrangement can be meaningful if you wish to support a cause that is important to you while also providing specific tax advantages. Two well-known charitable trusts are:
Charitable Remainder Trusts (CRT): You or a named individual can receive income from the trust for a set period, and whatever remains in the trust then goes to charity.
Charitable Lead Trusts (CLT): In this scenario, the trust pays out to the charity for a designated period, and any amount left over typically goes to your beneficiaries.
These arrangements can ensure that a portion of your estate goes to a favorite cause, whether it’s a museum, a local shelter, or another nonprofit.
Special Needs Trusts
Special needs trusts benefit a loved one with a long-term physical or mental disability. If you leave a sizable amount to a disabled family member outright, it could affect their eligibility for certain government benefits like Supplemental Security Income or Medicaid. By placing funds into a special needs trust, you help ensure they keep receiving benefits while still receiving support from your estate.
This type of trust covers essentials or comforts not provided by public programs, such as therapies, medical equipment, transportation services, or education. If you have a child or close relative with special needs, this trust can help protect them without risking the benefits on which they rely.
Testamentary Trusts
A testamentary trust is established within a will and takes effect only once you have passed away. This can be flexible if you want to place conditions on the bequests you leave, such as only giving money to children when they reach a certain age. Setting up a testamentary trust can also help you protect inherited funds from unwise spending or other life challenges your beneficiaries might face.
Keep in mind that a testamentary trust goes through probate, which means your overall estate could still be subject to court proceedings and possible related fees or delays. Despite that, it can be an effective strategy if you have specific instructions that apply after your lifetime.
Spendthrift Trusts
Some families worry that a beneficiary might burn through an inheritance too quickly or lose it to creditors. A spendthrift trust can limit direct access to trust funds by giving the trustee the power to decide how and when a beneficiary can withdraw money. Because a beneficiary cannot pledge or transfer the trust principal, creditors typically cannot seize it.
This type of trust may be useful if a child or grandchild struggles with money management or has financial troubles. It can also be relevant when you simply want to guide distributions more carefully for other reasons.
Pet Trusts
A pet trust is a lesser-known but heartfelt option for anyone whose animals are like family. These trusts specifically set aside resources to pay for the care, feeding, and medical needs of your pet if you are no longer able to look after them. The named trustee ensures that the caretaker uses the trust funds correctly.
Pet trusts are especially valuable for people with animals that have longer lifespans, like parrots or horses, though they can also be used for cats or dogs. It offers a way to plan for your pet’s well-being after your lifetime and helps confirm that your companion is not forgotten.
Other Types of Trusts
Beyond these core categories lie a wide range of certain trusts. These may help with retirement funds, life insurance proceeds, or other specific needs. Some examples include:
Credit Shelter Trusts
Asset Protection Trusts
Education Trusts
Grantor Retained Annuity Trusts (GRATs)
Irrevocable Life Insurance Trusts (ILITs)
Qualified Personal Residence Trusts (QPRTs)
Qualified Terminal Interest Property Trusts (QTIP)
Spousal Lifetime Access Trusts (SLATs)
Each of these has its own rules and nuances. Rarely is it a one-size-fits-all scenario, so discussing your goals and particulars with a trust attorney is vital before you settle on a particular trust model.
Below is a quick reference table for some trust features:
Trust Type
Can it be changed?
Common Goal
Probate Avoidance?
Revocable Living Trust
Yes, anytime before death
Avoid probate, maintain privacy
Yes
Irrevocable Trust
Not without beneficiary consent
Asset and tax protection
Yes
Testamentary Trust
Adjustable until death (via will)
Control inheritance conditions
No, must go through probate
Special Needs Trust
Varies by terms
Benefit a disabled individual
Yes
Choosing the Right Trust for Your Needs
Making a decision about trusts depends on your family structure, assets, and overall intentions. For instance, a young family thinking ahead about college costs might appreciate the flexibility of a revocable living trust. Parents of a child with special needs could find that a special needs trust eases concerns about future care. If estate taxes or creditor protection are concerns, an irrevocable trust might fit better.
It’s also worth examining how life changes could affect your plan. Marriage, divorce, or receiving an inheritance might shift which trust arrangement best aligns with your wishes. Hiring an estate planning attorney can help clarify these details and fine-tune a trust so that it matches your situation.
Reflect on these factors as you decide: Your current financial picture, the ages of those who may inherit, and potential growth in your estate’s value. Each trust offers distinct advantages, so examining your personal goals with a professional often brings peace of mind.
Contact Trusts and Estates Law Group (of North Carolina) Today
We know it can feel challenging to set up a plan that fits your life. Feel free to phone us at 919-782-3500 or reach us through our Contact Us page. We aim to offer thoughtful guidance and advocacy so you can look ahead with comfort. Let’s work together so your estate plan truly reflects the legacy you want to leave.
