The 4 Types of Trust, and Which Ones Young Families in California and Washington Need

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

The four types of trust most families hear about are the revocable living trust, the irrevocable trust, the testamentary trust and the special needs trust. The first two describe whether you can change the trust, the third describes when it is created (by your will, at death), and the fourth describes a purpose (caring for a person with a disability). For a California or Washington family with young children, the revocable living trust usually does the daily work, and the other three are added only when a specific problem calls for them.

This guide explains what each one does, what it does not do, and how the choice plays out at a $750k to $3M household income, where the real questions are probate cost, who controls money for a 7-year-old, and, in Washington, a state estate tax that starts far below the federal one.

The four types of trust at a glance

People searching for the “3 types of trust” usually see revocable, irrevocable and testamentary, with special needs folded in as a kind of irrevocable trust. The labels overlap. What matters is the job each one does.

1. Revocable living trust: the default for California homeowners

You create it, you are usually the trustee, and you can amend or cancel it whenever you like. While you are alive, the IRS treats it as you: same Social Security number, same Form 1040, no separate tax return in most cases (Form 1041 instructions, grantor type trusts). It does not cut income tax or estate tax, and it does not shield assets from your creditors.

What it does do is keep the assets titled in it out of probate, keep your plan private, and let a named successor trustee step in immediately if you die or become unable to act. For parents of young children, the most valuable part is the instructions: who manages money for the kids, and at what ages they receive it.

In California this matters because probate fees are set by statute and calculated on the gross value of probate assets, with no reduction for the mortgage. Both the attorney and the executor are entitled to 4% of the first $100,000, 3% of the next $100,000, 2% of the next $800,000, 1% of the next $9,000,000 and 0.5% of the next $15,000,000 (Cal. Probate Code §10810; the executor’s schedule is in §10800).

Worked example: a Cupertino family with no trust

Assumptions: married couple, two children aged 4 and 8, household income $1.1M (one Apple engineer, one physician). Home worth $2.6M with a $1.2M mortgage. Joint brokerage account of $900,000 from sold RSUs. 401(k)s and term life insurance with named beneficiaries. Both spouses die in the same accident and the house and brokerage account are not in a trust.

• Probate estate, gross: $2.6M home + $900,000 brokerage = $3.5M. The $1.2M mortgage is ignored for the fee.
• Statutory fee for each of attorney and executor: $4,000 + $3,000 + $16,000 + 1% of $2.5M ($25,000) = $48,000.
• Combined statutory fees: $96,000, before court costs, appraisal and any extraordinary fees, and a court process that typically runs many months.

Titling the house and brokerage account in a revocable living trust would keep both out of probate. The 401(k)s and life insurance pass by beneficiary designation, but if the named beneficiaries are the children themselves, a court-supervised guardianship of the estate may be needed to manage money for a minor. Naming the trust (or a trust for the children) as beneficiary avoids that. See our guide to naming a trust as beneficiary of a brokerage account.

Washington families

Washington has no statutory percentage fee schedule, and its probate is generally less expensive than California’s. A revocable trust is still useful there for privacy, incapacity planning, and setting the ages and conditions for children’s inheritances, but the probate savings argument is weaker. The bigger Washington issue is estate tax, covered below.

2. Irrevocable trust: when the goal is tax or protection, not convenience

Once you fund an irrevocable trust, you generally cannot take the assets back or rewrite the terms on your own. In exchange, assets in a properly structured irrevocable trust can sit outside your taxable estate and, depending on the trust and state law, may be harder for creditors to reach.

For 2026 the federal estate and gift tax basic exclusion is $15,000,000 per person, made permanent by the 2025 tax law and indexed for inflation from 2027 (IRS, What’s new, estate and gift tax). A married couple below roughly $30M is usually not facing federal estate tax, so many California families on our reader profile do not need an irrevocable trust for federal tax reasons. California has no estate or inheritance tax.

Washington is different. Its estate tax exclusion is $3,000,000 for deaths from July 1, 2026 onward ($3,076,000 for deaths from January 1 to June 30, 2026), with rates for deaths on or after July 1, 2026 running from 10% to 20% (Washington DOR estate tax tables). A Bellevue couple with a $2.4M home, $2M of investments and retirement accounts, and $4M of term life insurance owned by the insured spouse has an $8.4M estate on paper. Life insurance owned by the insured is generally counted in the estate. If everything passes to the surviving spouse, that is $5.4M above the $3,000,000 exclusion at the second death, exposed to Washington estate tax.

The common fix is an irrevocable life insurance trust (ILIT) that owns the policy, so the death benefit is not part of either spouse’s estate. In the example, moving the $4M policy into an ILIT would bring the estate down to $4.4M. Married couples in Washington also often discuss a bypass (credit shelter) trust at the first death so the first spouse’s state exclusion is used; an estate attorney can confirm how Washington treats a deceased spouse’s unused exclusion. These are drafting decisions for an estate attorney, and the order matters: a policy transferred into an ILIT can still be pulled back into the estate if the insured dies within three years (IRC §2035), so buying a new policy inside the trust is often cleaner.

Irrevocable grantor trusts (often called IDGTs) are a more advanced tool for very large or fast-growing estates. We cover the tradeoffs in the disadvantages of intentionally defective grantor trusts.

3. Testamentary trust: written in the will, created after probate

A testamentary trust is a set of trust terms inside your will. It does not exist until you die and the will is admitted to probate. It can do the same job as a living trust for your children (hold their inheritance, name a trustee, set ages), but it does not avoid probate, because the assets have to pass through probate to reach it.

For a California family with a home and a brokerage account, that usually makes it the weaker choice, as the example above shows. It can make sense as a backstop. A well-drafted plan typically has a “pour-over” will that sends anything left outside the living trust into it, and names guardians for the children. A will is also the usual place to nominate a guardian to raise your children (California also accepts a separate signed writing, Cal. Probate Code §1502), so parents typically still have one even with a trust.

4. Special needs trust: protecting a child’s eligibility for benefits

If a child has a disability and may rely on need-based programs such as Supplemental Security Income or Medi-Cal (Medicaid in Washington is Apple Health), an inheritance received outright can disqualify them. A third-party special needs trust, funded by parents or grandparents, holds money for the child’s supplemental needs while keeping it from being counted as the child’s own resource (SSA POMS SI 01120.200, trusts).

Two practical points. First, grandparents need to know about the trust, so they leave money to it and not to the child directly. Second, the trust can usually sit inside your revocable living trust as a sub-trust that springs into existence only for that child.

Which trust a high-income W-2 family usually needs

1. California, any net worth, owns a home: revocable living trust, pour-over will with guardian nominations, and beneficiary designations that name the trust for minors. This is the core.
2. Washington, estate above $3,000,000 including life insurance: the same core, plus a conversation about an ILIT and a bypass trust because of the state estate tax.
3. Combined estate approaching $30M: irrevocable trusts for federal estate tax can become worth the loss of control. The $19,000 per recipient annual gift tax exclusion for 2026 (Rev. Proc. 2025-32) is often part of that plan.
4. A child with a disability: add a special needs sub-trust, whatever your net worth.

Common mistakes we see

• Signing the trust and never funding it. A trust only controls assets titled in its name. A new brokerage account opened after RSUs vest, or a refinance that retitled the house to you individually, can quietly put assets back into probate.
• Leaving money to children outright or through UTMA. In California a UTMA gift by will or trust can be delayed to no later than 25, and a lifetime gift to no later than 21 (Cal. Probate Code §3920.5). A trust can stage distributions at whatever ages you choose. See what happens to UTMA when a child turns 21.
• Believing a revocable trust saves tax. It does not. Assets in it are fully in your estate and taxed to you every year.
• Using a 2017-era plan built around a lower exemption. Many older plans include formula clauses written for a different estate tax regime. Washington families especially should have them reread against the current $3,000,000 state exclusion.
• Naming the wrong trustee. The person who will raise your children and the person who will manage their money do not have to be the same. Some families split the roles. Our article on whether a financial advisor can be your executor covers the options.

What to write down for your kids and your trustee

A trust document says what the trustee may do. It rarely says why. Your trustee will face real questions: should the trust pay for a gap year, a first car, graduate school, a down payment? A one or two page letter of wishes, kept with the trust and updated every few years, tells the trustee how you thought about money, work and giving, and later becomes something your children can read themselves. As Kevin Luu puts it: “Your kids will inherit your money. Will they inherit your judgment?” This is the kind of decision record a FamilyKnowledge® Library is built to hold.

Frequently asked questions

What is an alter ego trust?

An alter ego trust is a Canadian estate planning structure for people aged 65 or older. It does not exist under US tax law. The closest US equivalent for a California or Washington family is the revocable living trust, which also keeps assets out of probate and is taxed to the person who created it while they are alive.

Do I still need a will if I have a living trust?

Yes. A pour-over will catches any asset you forgot to put into the trust and sends it there, though that asset may still go through probate. Just as important for parents, the will is the usual place to nominate a guardian to raise your minor children. A trust names who manages their money, not who raises them.

Is a revocable trust worth it in Washington?

Often yes, but for different reasons than in California. Washington probate is generally less costly, so the main benefits are privacy, a smooth handoff if you become incapacitated, and clear rules for children’s inheritances. If your estate including life insurance is above $3,000,000, separate planning for Washington estate tax is usually worth a conversation.

Next step

Pull your current deed, brokerage statements and beneficiary forms, and check whether each one actually names your trust. If you do not have a trust yet, start with the revocable living trust and guardian nominations, then decide with an estate attorney whether Washington estate tax or a child’s needs call for anything more. Our estate planning and family governance work at Age Five Family Office™ covers both the documents and the letter of wishes that goes with them.

This is general education, not legal or tax advice. The right structure depends on your family’s full picture and should be drafted by a licensed estate attorney in your state.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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