Most Americans have heard of a will, even if they do not have one. However, the majority of people are far less familiar with living trusts. In many cases, living trusts are better than wills when creating an estate plan.
There are two principal varieties of living trust. According to Experian, these are revocable and irrevocable.
Understanding a revocable trust
A revocable trust is the more flexible trust. You can change a revocable trust as much as you want prior to your death. Anything that you put into a revocable trust remains your property so long as you are alive.
After you die, the successor trustee that you appointed will then distribute whatever is in the revocable trust according to your wishes. The main difference between a revocable trust and a will is that anything in a revocable trust will not go through probate. This means that anything in a revocable trust will get to your heirs much faster.
Understanding an irrevocable trust
You may not change an irrevocable trust once you create it. Anything that you put into the irrevocable trust will become the legal property of the trust, and not your personal property any longer. Doing this has several advantages.
The first advantage is that any creditors will not be able to go after anything in an irrevocable trust because it is no longer your personal property. The second advantage is that the government cannot subject anything in an irrevocable trust to estate taxes. However, if the government finds out that you created an irrevocable trust for fraudulent purposes, you may face legal repercussions.