No matter the extent of your assets, having a comprehensive estate plan in place is of paramount importance. Many people are familiar with the role a last will and testament may play in an estate plan. However, living trusts are much less well-known.
The two umbrellas of living trusts are “revocable: and “irrevocable.” According to Experian, revocable living trusts are good for helping your heirs avoid probate court, while irrevocable living trusts are good for avoiding estate taxes.
How can living trusts help my heirs avoid probate court?
With a revocable living trust, anything that is in that trust will go immediately to your beneficiaries after your death. Any assets that you put into a revocable living trust remain your legal property until your death, which means that your estate will still be subject to estate taxes.
However, anything in a revocable living trust bypasses probate court as a matter of course. Immediately after you die, the executor of your revocable living trust will be able to pass out your assets according to your wishes. This can save your heirs years in court.
How can living trusts help me avoid estate taxes?
Irrevocable living trusts work a little bit differently and have different benefits than revocable living trusts. For example, once you put assets into an irrevocable living trust those assets are no longer your property. Rather, they become the legal property of the trust.
Since you will no longer legally own the assets in the trust, the government may not subject those assets to estate tax upon your death. Additionally, putting assets in an irrevocable living trust shields them from creditors, as well.