When it comes to estate planning, most Americans are familiar with the function of a will. However, many are not familiar with how living trusts can help build a strong estate plan.
With a living trust, you can transfer your assets into a specific fund while you are still alive. According to Experian, the two blanket-variety types of living trusts are “revocable” and “irrevocable” trusts.
These living trusts are the more flexible option. After you transfer your assets into the fund, the assets still legally belong to you. You can also make as many changes to a revocable living trust as you like while you are still alive.
The biggest benefit to a revocable trust is that anything in the trust avoids probate. Given that probate can be a very protracted process if your estate is complex, creating a revocable trust can ensure that your assets go to your beneficiaries in a timely manner. Once you die and your chosen executor distributes the assets, the trust will then cease to exist.
You may not change an irrevocable trust once you create one. Anything that is inside of an irrevocable trust becomes the legal property of the trust. This means that creditors may not go after any assets inside of an irrevocable trust. Additionally, the government may not apply estate tax to those assets. However, if you create an irrevocable trust for fraudulent purposes, it is possible that the courts may apply legal penalties.
Estate planning is complex and difficult. However, proper use of revocable and irrevocable trusts can give you more power over the process.