Most Americans are aware of what a last will and testament do. However, many people do not understand the role that living trust can play in a comprehensive estate plan.
In many cases, you may benefit from including living trusts in your estate plan along with a last will and testament. According to Experian, the two major types of living trusts are revocable and irrevocable.
What do revocable trusts do?
This type of trust is good for the estate planner who wishes to help his or her beneficiaries avoid probate. Probate is an expensive process. Depending on the status of your will, it is possible that the courts will hold up some of your assets in court for years. During this time, your beneficiaries will not have access to these assets.
A revocable living trust is one way to avoid this happening. Anything that you put into a revocable living trust remains your property until you die. Once you die, anything that is in the living trust goes directly to your beneficiaries without going through probate first.
What do irrevocable trusts do?
If handled properly, an irrevocable trust can help your estate avoid estate taxes. This is because anything that you put into an irrevocable trust becomes the property of your trust and is no longer your personal property. When you die, the government cannot levy estate taxes against anything that is in an irrevocable trust.
Whether or not living trusts would benefit your estate plan depends on the state of your assets and what you would like to have happened after you die. However, living trusts offer a heightened level of flexibility beyond what you can control with a last will and testament alone.