Most people are familiar with the concept of a will, but living trusts are less familiar for most. For many Americans, living trusts can help streamline estate planning and potentially help beneficiaries avoid probate or estate taxes.
The type of living trust you choose depends on your particular needs. According to Experian, there are two varieties of living trusts, and they are revocable and irrevocable.
What is a revocable living trust?
With a revocable trust, you can make as many modifications to it as you like prior to your death. Additionally, all assets that you put in the trust are still legally your property. Prior to your death, you will name a successor for the living trust. After your death, this successor will be able to distribute whatever assets are in the trust according to your wishes.
The main advantage of a revocable living trust is that anything in this trust does not have to go through probate.
What is an irrevocable living trust?
With an irrevocable living trust, once you sign the paperwork you can make no changes to it. Anything that you put into the trust becomes the legal property of the trust, rather than you. The major advantage to an irrevocable living trust is that the government may not subject anything that is in the trust to estate taxes.
In addition, creditors may not seize assets in an irrevocable living trust since anything in the trust does not legally belong to you anymore. However, if the law finds that you created an irrevocable living trust to avoid non-estate taxes or creditors, the law may prosecute you.