An individual can set up a trust during their lifetime to ensure that the assets in the trust are being used the way he intended. Often times, people will use a trust, in combination with of a will, for estate planning purposes and to stipulate what happens to their assets after they pass.  After death, trusts can also reduce tax burdens and avoid assets going to probate. The trustee, a third party that manages the trust, follows the guidelines created when the trust was formed. The trustee determines how the assets are invested and distributed when the owner of the trust dies, in accordance to their wishes. There are two basic types of trusts, revocable trusts and irrevocable trusts.

In a revocable trust, (also known as a revocable living trust or living trust), the owner may change the terms at any time. For example, the owner may change the beneficiaries, and change the stipulations to how the assets in the trust are managed. However, there are disadvantages to the revocable trust. The assets of this trust are not shielded from creditors; if the owner of the trust is sued, the trust assets can become liquidated. A revocable trust is also subject to both state and federal estate taxes.

An irrevocable trust differs, because the terms are extremely difficult to change or modify once the agreement is signed. Once the assets have been transferred into the trust, the owner of the trust releases all control. An irrevocable trust is primarily chosen due to its tax benefits. The assets are not subject to estate tax upon death and the benefactor does not pay the taxes for any income generated by the assets. Irrevocable trusts require the help of an attorney to set up.