What are different types of trusts?
Author: Hope Wood
I am happy you found Hope Wood JD in your research on different trusts in Iowa. In this article, I’ll review common types of trusts. There are many more than what is listed, but they are less often used. For this article, I will cover four types of trusts: testamentary, living, revocable, and irrevocable.
How do I know what type of trust I need?
The type of trust you need depends on your risk tolerance and the level of control you want over your assets. A testamentary trust could require probate. An irrevocable trust removes the asset from your control. In the middle is a living, or revocable, trust which can avoid probate and keep the assets in your control.
What is a testamentary trust?
A testamentary trust is written in a Last Will and Testament and is effective on the death of the testator. The testator is the creator of the Last Will and Testament. A testamentary trust is a trust that is administered after your death by your named trustee. In summary, if you have a Will, the Will can include a testamentary trust.
The disadvantage of a testamentary trust is that it can’t own assets during your lifetime. In Iowa, one of the main reasons for probate is real estate. Real estate without an owner with rights of survivorship requires probate to transfer or be sold. Even with a Will, real estate laws govern the probate requirement.
The advantage of a testamentary trust is that you have control of the distribution of assets that are subject to the testamentary trust. Assets that are transferred by your Will can be payable to your testamentary trust. You can name your testamentary trust as a beneficiary of certain assets, like life insurance or a Roth IRA. A testamentary trust is a less expensive way to provide a structured inheritance for beneficiaries who are minors or who are not responsible with money. A testamentary trust can avoid the need for a conservatorship for a minor or a person with a disability. A conservatorship is required if either of those people is named as a beneficiary or inherits as an heir-at-law. For example, a grandparent names a grandchild in their Will, and the grandchild is 16 years old when the grandparent dies. In most circumstances, inheritance will require a court-supervised conservatorship until the grandchild reaches age 18.
An additional advantage of a testamentary trust is that you determine at what age a beneficiary receives their full inheritance. In the meantime, the trustee can distribute funds to the beneficiary or on the beneficiary's behalf for the reasons outlined in the trust.
What is a living trust?
A living trust is created using a trust agreement. The trust agreement creates a legal entity that can own assets. The trust agreement is the rulebook for administering the trust assets. It is called a living trust because it is effective during your lifetime. A living trust is not testamentary. Remember, a testamentary trust is effective after your death.
Some trusts include the term “living” in their names. The term “living” is not required in the trust's name and seems redundant. For example, the Hope Wood Living Revocable Trust is redundant. The name of the trust does not need “living” and “revocable”; they indicate the same thing. Hope Wood Living Trust or Hope Wood Revocable Trust are both appropriate names for a trust where you retain control of the assets. A living trust becomes irrevocable after the death of the creator. A revocable trust can be amended or revoked while you are alive and competent.
In Iowa, the term “revocable” is more often used than “living” to name the trust. A living trust can be revocable or irrevocable. I will discuss the advantages and disadvantages of each in the next sections.
What is a revocable trust?
A revocable trust is created using a trust agreement. The trust agreement creates a legal entity. In the same way you create an LLC as a business entity separate from the creator, a person creates a trust separate from themselves. The person transferring assets to the trust is typically the trust's creator. A person who creates the trust is called a grantor, settlor, or trustor. They all mean the same thing: the person creating the trust.
The disadvantage of a revocable trust is that you must legally transfer assets to the trust for it to control them. This can be time-consuming and confusing. An additional disadvantage is that they cost more than a testamentary trust. The cost of a revocable trust can range from a few thousand dollars to more than $20,000. The cost of the trust depends on its level of complexity.
The advantages of a revocable trust outweigh the disadvantages. When correctly funded, a trust can avoid the requirement for probate. Probate is time-consuming, expensive, and is legally a public record. When the trust is funded, it means that assets are retitled from your individual ownership to the trust's ownership. For example, after you sign your trust agreement, you can change ownership of your bank account to be the trust.
In Iowa, it is important to hold real estate in a trust to avoid probate. The exception to this is if you have real estate that is a rental property or used for Airbnb, VRBO, or similar house-sharing. I will collectively refer to this type of real estate as “income property”. You should not put income property in your trust. It should be owned by a separate legal entity that is solely for the business. The most common entity is a limited liability company (LLC).
The advantage of owning your homestead and second homes in a trust is that ownership will transfer according to the trust's terms. This is why probate is avoided for real estate owned in a trust. The trust is a legal entity and therefore doesn’t die. When the grantor of the trust dies, the beneficiary the grantor named in the trust inherits the real estate. The revocable trust can be drafted so that real estate, such as farmland, is given as a lifetime gift to a beneficiary. The real estate would continue to be owned by the trust, and upon the beneficiary's death, the successor beneficiary, named by the grantor, will inherit it.
What is an irrevocable trust?
An irrevocable trust is a trust agreement that cannot be modified, amended, or revoked. This is contrasted with a revocable trust, which can be modified, amended, or revoked until the death of the trust creator. An irrevocable trust is a legal tool that removes assets from your control. After assets are transferred to an irrevocable trust, they are no longer owned by the trust creator. This protects the assets from creditors and provides special tax benefits. Additionally, when assets are held in an irrevocable trust, they are not reported on a Medicaid application because you have no ownership or control. One tax benefit is that, upon the trust creator's death, the assets in an irrevocable trust are not part of the estate and therefore not subject to federal estate tax.
The disadvantage of an irrevocable trust is that the asset transfer is permanent. Once the asset is owned by the irrevocable trust, it is no longer your asset. The trustee appointed under the trust manages the assets by following the terms of the trust agreement. For example, if the irrevocable trust owns a brokerage account, the trust agreement can authorize the trustee to distribute the annual income earned from the brokerage account to you as a beneficiary. The creator of the trust can be named as the beneficiary. It is not advisable to name yourself as the trustee because you will lose the benefits associated with an irrevocable trust.
Another disadvantage of an irrevocable trust is the cost of its administration. The trust creator cannot serve as trustee; therefore, an appointed trustee must administer the trust for the creator's life. The trustee should be compensated annually. If the trustee is a bank, they typically charge 1% of the trust's value each year as their fee. The trustee has to file a separate tax return for the trust because it is no longer the creator’s asset. This requires hiring a CPA who is familiar with a 1041 tax filing.
The cost of administration and the permanency of an irrevocable trust should be carefully considered. To revoke an irrevocable trust in Iowa, court involvement and the consent of all beneficiaries are required. The court may decide not to amend or revoke an irrevocable trust if it is inconsistent with the intent of the grantor.
The advantage of an irrevocable trust is that it is removed from your taxable estate when you die. In 2026, the exempted amount of an estate is $15.1M. If your estate is under that amount, there is no need for federal estate tax planning. Another advantage of an irrevocable trust is that the assets are not under your control. This protects them from creditors.
Why are Trusts expensive?
An experienced estate planning attorney provides greater value and is essential to implementing your asset transfer. If the Trust isn’t drafted and funded correctly, then the lower price you pay for a Trust will be offset by attorney fees your beneficiaries will pay to handle issues that occur.
Using AI to write a trust
It is very tempting to use AI to write your own trust. Similar to using an online form, you don’t know if the document will execute your estate plan according to your intent. I probated a DIY Last Will and Testament that was executed when the person was terminally ill. The Will was very thoughtful, providing gifts to many family members and charities. When you gift money in a Will, there needs to be an asset source to fund the gifts. The assets did not cover the gifts issued through the Will. The probate cost increased because the DIY Will had a dozen or more beneficiaries who all needed notice. Because probate was opened, the decedent’s creditors also got notice and that they could file claims against the estate. In the end, there was no money left to gift to people named in the Will. Online forms are a huge risk; oftentimes, it is better to have your estate go through probate without a Will. AI has its place in estate planning, but its best use is to generate questions for an attorney.
Using an attorney without Trust expertise
Having an attorney with experience drafting trusts is very important. If the attorney doesn’t understand estate planning for asset transfers, then their form could create problems for beneficiaries. A common example is a family law attorney who prepares a Will for a client after a divorce. They may understand asset transfer planning, but they may not. Learn more about estate planning to know the questions to ask your divorce attorney.
I have been drafting trusts for twelve years. I’ve drafted more than 300 revocable trusts. I know my area of expertise with trusts. There are types of trusts that I refer to an attorney with tax experience to help the person avoid federal estate taxes. In 2026, the estate tax exemption is $ 15.1 million. Most of the trusts that I prepare are for individuals’ assets totaling $350,000 to $1,000,000.
Revocable Trusts are more expensive than a Will
A revocable or irrevocable trust involves a trust agreement that creates a separate legal entity. Once the entity is created, assets need to be retitled to be owned by the trust. Both of these steps require an experienced estate planning attorney. A trust continues after your death, and the details of the trust administration are very important. The contingency provisions for beneficiary distributions must be carefully thought out. An attorney with experience in trust administration and probate is often skilled in estate planning because they can draft the trust to avoid headaches that happen from poorly written wills and trusts.
Cost of a testamentary trust compared to a revocable trust
The cost of a testamentary trust will be less than a revocable trust. This is because a testamentary trust cannot own assets until the testator's death. An attorney should advise you on beneficiary changes necessary to fund the testamentary trust after death for a minor or spendthrift beneficiary. Assets that pass under your Last Will and Testament can also fund the testamentary trust.
How do I know what type of trust I need?
Hope Wood JD has the perfect option for you. A consultation with an experienced estate planning attorney is at your fingertips. Schedule a trust consultation today. In the consultation, you will receive legal advice about the advantages and disadvantages of a Trust for your specific estate plan. At the end of the consultation, you will receive a flat fee price if you want to hire Hope Wood JD for your estate planning. Even if you don’t hire us for your estate plan, you will leave the consultation with a wealth of knowledge about your estate circumstances and what is in your best interest.
Hope Wood, Attorney and Law Firm Owner
I feel incredibly lucky to have helped more than 1,200 Iowans with their estate plan.
I specialize in estate planning, trust administration, and probate so I can be all in on what you need for your legacy.
