While the majority of Americans do not have a last will and testament, almost everybody is aware of the purpose of such a document. Far less well-known are living trusts, which can be a very robust and powerful part of any complete estate plan.
A living trust can help your heirs avoid probate after you die, and you can use them to avoid estate taxes in certain instances. According to Experian, the two main umbrella varieties of living trusts are revocable and irrevocable.
Leveraging revocable trusts
One of the key goals of most estate planners is helping their heirs minimize the amount of time that assets spend in probate. After all, if an asset is sitting in probate that means that your beneficiaries do not have access to it.
A revocable trust can help here. Anything that you put in a revocable trust the government cannot subject to probate. This is a good way to pass down large assets like houses to ensure that they do not get tied up in probate.
Leveraging irrevocable trusts
If used correctly, irrevocable trusts can prevent the government from levying estate taxes against any assets inside. However, irrevocable trusts are a lot less flexible than revocable ones.
With an irrevocable trust, you cannot make any changes to the trust itself once you sign the paperwork and put assets in the trust. Also, any assets in an irrevocable trust are no longer your personal property, but rather the property of the trust. This is why anything in an irrevocable trust can avoid estate taxes. No matter how you would like to organize your estate, living trusts are powerful planning tools.