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What is a living trust?

The vast majority of Americans understand the concept of wills and know why they are important. However, particularly if you have many assets, wills are not the only tools available to you. Many Americans choose to place some of their assets in living trusts.

Living trusts provide benefits that wills do not, and depending on your desires and situation you may find them helpful. As per Experian, there are 2 different kinds of living trust: revocable and irrevocable.

The revocable trust

Anything that you place into a revocable trust remains your legal property. You can also make as many changes as you wish to a revocable trust before you die. The main benefit of a revocable trust is that anything inside of one will avoid probate. Probate, depending on the condition of your estate, can take months or even years. Revocable trusts are a way of ensuring that your assets go to your beneficiaries as quickly as possible.

The irrevocable trust

In contrast to the revocable trust, anything that you place into an irrevocable trust is no longer your property. You also cannot make any changes to an irrevocable trust after you create it, as the assets belong legally to the trust, and not to you anymore.

Irrevocable trusts are good for avoiding estate taxes, as the government cannot tax anything that is in an irrevocable trust. Creditors also cannot go after anything in an irrevocable trust. However, it is also possible to create irrevocable trusts for fraudulent purposes. If you do this, then the law may subject you to penalties.

Living trusts are valuable tools when it comes to controlling the distribution of your assets. Careful use of living trusts can help you manage your wealth both before and after death.