The majority of Americans understand the function of a last will and testament, even if they do not have one themselves. However, the function of living trusts in a complete estate planning package is often a mystery.
The reality is that living trusts can help your heirs immensely when they are sorting through your estate after your death. According to Experian, the two major varieties of a living trust are revocable and irrevocable.
The benefits of a revocable trust
Of the two major varieties of a living trust, the revocable trust is the most flexible. You can make as many changes to a revocable trust as you like up until your death. Anything that you put inside of a revocable trust also remains your personal property.
The major benefit associated with revocable trust is that anything inside of one will skip probate. This means that your assets will go to your heirs much faster. Considering that probate can potentially take months or years, depending on the estate, revocable trusts are very valuable in estate plans.
The benefits of an irrevocable trust
The main purpose of irrevocable trust is to avoid estate taxes. Anything inside of an irrevocable trust receives automatic protection from estate taxes and creditors. The reason why this is possible is that once you create an irrevocable trust and fill it, the assets inside of the trust are no longer your personal property.
You also are not able to make any changes to an irrevocable trust once you sign off on it. Keep in mind that if the courts find you have created an irrevocable trust for the sake of defrauding creditors that there are penalties associated with this.