Trusts are an important way to do estate planning, but many people get confused about the different types of trusts.

In this clip from Industry Focus: Financials, Motley Fool analyst Gaby Lapera and Dan Caplinger, the Fool's director of investment planning, talk about various types of trusts, including various types of revocable and irrevocable trusts. By getting a firmer grip on how each type of trust works, you'll be able to work more effectively with your estate-planning professionals to get a good plan in place for your needs.

A full transcript follows the video.

This podcast was recorded on Sept. 22, 2016 for the Oct. 31, 2016 episode.

Gaby Lapera: What I'm hearing is that trusts are potentially a better vehicle for a lot of people. And I know there's different types of trusts. The ones that we've been talking about have been living trusts, and of those living trusts, there's both revocable and irrevocable trusts.

Dan Caplinger: Yeah, a living trust, when you hear somebody talking about a living trust, they're generally talking about revocable living trusts, because that's the kind of trust that you can make changes to during your lifetime. As you pointed out, irrevocable trusts are things that, once you create that trust, you can't change the aspects of it, you can't change the instructions. For the most part, there are more specific, specialized reasons to use irrevocable trusts during your lifetime, but in the vast majority of cases, when you're talking about basic estate planning, you're talking about setting up a revocable trust.

Lapera: I know -- or, I think I know, because I'm not 100% clear on trusts -- the irrevocable trust, while you can't make changes to it, I was under the impression that the appreciated assets aren't going to be subject to estate trust, which might be one of the reasons why you might be interested in opening an irrevocable one versus a revocable living trust. Of course, you can have multiple trusts set up, right?

Caplinger: That's true. You can have multiple trusts set up. And you're right that, when you're talking about gift and estate tax, by setting up an irrevocable trust that vested the time of the initial formation of the trust, the valuation of that trust at its formation is the value that will be used for determining the gift and estate tax value that is charged against your unified gift and state tax credit at your death. That's very complicated.

Lapera: It's so complicated. [laughs]

Caplinger: But as you say, the net result of that is, if you give property that's worth $10,000, you put that into an irrevocable trust now, over the next 30 or 40 years, it climbs up to $100,000, the value that will be treated as the appropriate value for gift and estate tax purposes will be that $10,000 value at the time that you made the gift, not the $100,000 that's the appreciated in value at the time of your death. That's assuming you made an irrevocable trust that's not subject to being clawed back into your estate. Those rules are probably more technical than we want to get into at this point. In general, you can -- with the help of your attorney -- set up an irrevocable trust to achieve those ends and get the estate tax relief that you want. 

Lapera: I have a series of questions for you about trusts, and then I want to get into the estate tax. Rapid-fire. Where can I get a trust?

Caplinger: An estate planning attorney is probably the best way to structure a trust. An estate planning attorney will know what questions to ask in order to figure out exactly what you want to have under what circumstances, and to get the document set up the way that you want.

Lapera: How much does it cost to set up a trust?

Caplinger: It usually costs...legal fees from place to place vary greatly, but what I will say is this: It usually costs more up-front to set up a trust than it does to draft a simple will. But, when you consider the additional cost later on of a will, the cost of hiring an attorney to go through the probate process, the total costs that you'll spend on estate planning throughout your lifetime and after your death in the case of a will and the probate proceeding are often roughly comparable. So, it's more a matter of timing than it is a matter of how much you'll spend. You might save more up-front on a will, but if it's costly to administer in probate after your death, then that's when the costs will catch up to the total amount you would have paid to the trust.

Lapera: So, it's kind of whether or not you want your kids to have to deal with it, or you.

Caplinger: Yeah.

Lapera: Should you update a trust? If so, how often should you update a trust?

Caplinger: Whether you have a will or a trust, it makes sense to have it taken a look at regularly in a number of situations. In general, every three to five years is a good idea just to make sure that there aren't any major legal changes that would affect the situation. However, you should have it looked at more frequently than that if there are major changes either to your financial situation or to your family situation.

For instance, if you get married, if you get divorced, if you have a child, these things are generally going to change the way that you want your assets to pass after you die. So, it makes sense to have your estate planning documents taken a look at to make sure that they still do what you want to do. And that goes not just for the will and for the trust, but it also goes for those beneficiary designations that we were talking about earlier. You definitely don't want an account that you set up when you were married to go to your ex-spouse after you get divorced. And yet, there are a huge number of beneficiary designations out there that do that, just because the person forgets that that beneficiary designation was out there in the first place.

Lapera: And I want to listeners know that your estate attorney will probably charge you a fee to update your trust and/or will, but it's a lot less than it was to set it up in the first place.

Caplinger: Often, yes. More importantly, it avoids some major problems that can occur if you have an out-of-date document that might not actually meet the needs and wishes that you have because of these changes that can occur.

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