Both living trusts and wills can be powerful forces in your estate plan. However, while the majority of Americans are at least casually familiar with what a will does, living trusts are far less well understood.
There are two major types of living trusts. Which one is best for your needs depends heavily on your personal estate situation. According to Experian, the two different varieties of living trusts are revocable and irrevocable.
Understanding revocable trusts
With a revocable trust, anything that you put inside the trust remains at your own property. You can modify the terms of a revocable living trust as many times as you want until your death.
After your death, the government considers anything in the living trust as part of your estate and will tax it accordingly.The major advantage of a revocable living trust is that anything you put into the trust will not go through probate. Since probate is a public process and it can be very time-consuming, a revocable living trust is a way to help your beneficiaries gain access to your assets faster.
Understanding irrevocable trusts
On the other hand, you are not able to modify anything in an irrevocable trust once you sign off on it. Anything that is in an irrevocable trust becomes the property of the trust itself, and it is no longer your personal property.
Because assets in an irrevocable trust are not your personal property, the government does not subject those assets to estate taxes. Depending on the needs of your state, using irrevocable and revocable trust in combination with a traditional will can be very powerful.