Most Americans are aware that a will is one way of ensuring your assets go to the desired recipients after your death. However, fewer people are aware of what living trusts do and how powerful they can be in estate planning if used properly.
Almost every estate plan includes a will as a centerpiece, but many estate plans also benefit from the power of living trusts. According to Experian, living trusts can potentially help your assets avoid probate and estate tax.
How can a living trust help me avoid probate?
The first major variety of living trust is the revocable trust. With a revocable trust, anything that you put in the trust still remains your property, even though it is in the trust. You can also make as many changes to the trust as you like while you are alive. Upon your death, anything that you put in the trust will skip probate. Instead, your executor will be able to parcel out your assets according to your wishes with no interference from the courts.
How can a living trust help me avoid estate taxes?
The second variety of living trust is the irrevocable trust. With an irrevocable trust, anything that you put in the trust becomes the property of the trust. In this way, when you die the government will not be able to apply estate taxes to the assets in the trust. This is because the assets in the trust did not legally belong to you at the time of your death.
Depending on your specific needs, revocable and irrevocable living trusts can play a major role in your estate planning process.