The terminology of trusts

Deciphering the language around estate planning.

Article published: August 21, 2023

A trust is one of the most common tools used today for estate planning. Essentially, it is a legal agreement involving at least three individuals or entities and designed to provide direction for how the assets in your estate are managed and preserved. A trust can be used to manage these assets prior to your passing or only after you are deceased.

But like most legal agreements, trusts use many terms and designations that are not readily familiar to nonlawyers. To help you better understand their mechanics and purpose, we’ve put together a short primer on the language of trusts.

The main parties of a trust

Grantor: The individual who establishes a trust and legally transfers assets to a trustee. The grantor may also be referred to as the settlor or trustor.

Trustee: An individual, bank or trust company that holds legal title to the assets of a trust and is responsible for managing them and following the terms and purposes of the trust agreement. If there is more than one trustee in a trust, they are called “co-trustees.” A trustee is a fiduciary required to act in the best interests of the beneficiaries of the trust (the grantor can also be a trustee).

Beneficiary: An individual for whom a trust is created. There can be multiple beneficiaries in a trust.

Trust categories

There are two main categories of trusts: revocable and irrevocable.

Revocable: A trust that can be modified or terminated by the grantor while they are alive. A revocable trust is often called a will substitute because it provides for the disposition of the grantor’s assets at his or her death.

Irrevocable: A trust that, once established, cannot be changed. An irrevocable trust can be created during a grantor’s lifetime or at his or her death.

Many clients will start their estate plan with a revocable trust and then determine the irrevocability options that would occur at incapacity or death.

Different types of irrevocable trusts

Marital trust

This is often referred to as a qualified terminable interest property (QTIP) trust or “A trust,” one-half of a trust strategy commonly known as an “A/B trust.” A marital trust is an irrevocable trust that allows assets from a deceased spouse to be transferred to a surviving spouse in trust, but free of estate taxes at the first spouse’s death. The surviving spouse is the only current beneficiary of the marital trust, but the grantor may direct the disposition of trust assets at the death of the surviving spouse.

Credit shelter trust

A credit shelter trust, which is sometimes referred to as a family trust, a bypass trust or a “B trust” – part of the A/B trust strategy mentioned above – is designed to reduce or even eliminate federal or state estate taxes due on the estates of married couples by “sheltering” one spouse’s federal or state estate tax applicable exclusion amount from taxation at the death of the surviving spouse. The applicable exclusion amount is the maximum dollar amount that is excluded from federal or state estate taxes at a decedent’s death. The surviving spouse is usually the beneficiary of a credit shelter trust, but the grantor can also designate children and grandchildren as beneficiaries. 

Special needs trust

A special needs trust is a trust for the current benefit of an individual with a disability or other special needs. Special needs trusts are structured in a way that the assets within the trust are not considered assets of the beneficiary, allowing the beneficiary to qualify for governmental benefits (such as medical and housing benefits) that they might be eligible to receive.

Spendthrift trust

An irrevocable spendthrift trust allows you to leave an individual a sum of money but limits their direct access to the funds. Instead, a trustee would then distribute the inheritance based on guidelines you provide in the trust agreement. This could be in the form of an allowance, or for specific expenses, such as college or medical expenses, or to buy a home or start a business. Assets within a spendthrift trust are generally sheltered from attachment by a beneficiary’s creditors.

Irrevocable life insurance trust

This type of trust is created in order to own a life insurance policy on the grantor’s life, but remove the proceeds from the grantor’s estate for estate tax purposes. Instead of paying the policy premiums directly, a grantor makes a gift to the trust and the trustee uses this money to pay the insurance premiums. Instead of beneficiaries automatically receiving the insurance proceeds immediately upon the policyholder’s death, funds are paid to the trust and the trustee distributes them based on the trust instructions. Irrevocable life insurance trusts are often created and funded to offset the payment of anticipated estate taxes.

Crummey trust

Named after the Tax Court case that litigated this form of trust in the 1960s, this is an irrevocable trust that allows the grantor to make a gift to a beneficiary in trust, while still qualifying for the annual gift tax exclusion.

Dynasty trust

Designed primarily to pass wealth from generation to generation without incurring gift taxes or estate taxes, a dynasty trust’s defining characteristic is its duration. Many trusts will terminate at some point either by design or legal mechanism, but a dynasty trust can last for generations, and in some cases, forever.

Charitable remainder trust

A charitable remainder trust pays an income stream for a term of years or for a beneficiary’s lifetime. At the end of the trust’s term (or the death of the beneficiary), all remaining assets pass to a charity the grantor designates. Assets within the trust are removed from your taxable estate and you receive a partial income tax deduction at the time the trust is created.

Depending on your individual needs and financial situation, you can choose a trust structure, or multiple types of trusts, that can help you achieve your estate planning goals. An Edelman Financial Engines planner can work with you and your attorney to help you weigh the pros and cons to determine what type of trust makes sense as part of your overall integrated wealth plan.

The use of trusts involves a complex web of state laws, tax rules and regulations. Consider involving your legal and tax advisors prior to implementing any estate planning strategy.


The information regarding estate planning should not be construed as tax or legal advice and is for general informational purposes only. Neither Edelman Financial Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to include your qualified tax and/or legal professionals in these discussions and decisions to help determine the best options for your particular circumstances.

    How to Customize Your Retirement Plan Using the 4% Rule

    Retired and need to raise your tech game?

    Preparing for retirement

    When to collect Social Security