The majority of Americans understand the purpose of a will. However, fewer people are familiar with the role that living trust can play in a complete estate plan.
The correct use of a living trust can help your heirs avoid probate, and in some cases may help your estate avoid estate taxes. According to Experian, the two major varieties of living trusts are revocable and irrevocable.
The revocable trust
The major benefit associated with revocable trust is avoiding probate. Probate is an expensive process and also happens to be part of the public record. Many Americans would prefer their heirs to have their inheritance right away, and not need to wait for years for assets to go through probate.
Probate’s public nature is also off-putting too many. If you put things in a revocable trust they remain your personal property until your death. You can also make as many changes as you would like to a revocable trust until death.
The irrevocable trust
The main purpose of irrevocable trusts is to have whatever asset you put into the trust avoid estate taxes. Irrevocable trusts differ from revocable trusts in that anything you put inside of an irrevocable trust becomes the property of the trust itself. Additionally, you cannot make any changes to an irrevocable trust once you file the paperwork.
Additionally, creditors cannot go after anything inside of an irrevocable trust since it is not your personal property once you place it in the trust. However, if the government finds that you created an irrevocable trust for fraudulent purposes there are penalties for this.