Most American adults are aware of the function a last will and testament provides. However, living trusts are better than wills in certain situations.
Particularly for high-asset estates, living trusts can help you manage your assets to their fullest extent. According to Experian, irrevocable living trusts are good for avoiding estate taxes whereas revocable trusts can help your heirs avoid probate court.
How can an irrevocable living trust help me avoid taxes?
Anything that you place into an irrevocable living trust becomes the property of the trust and not your personal property anymore. This gives the assets in an irrevocable living trust protection from both creditors and the government. Anything that you place into an irrevocable living trust the government may not subject to estate taxes and creditors may not go after.
However, once you put your signature on the line of an irrevocable living trust you may not change the terms. Additionally, if the government finds out that you created an irrevocable living trust for fraudulent gains you may be subject to legal penalty.
How can a revocable living trust help my heirs avoid probate?
On the other hand, you can change the terms of a revocable living trust at any point before your death and anything that you put into a revocable living trust remains your personal property. The advantage of a revocable living trust is that, upon your death, the executor can immediately disperse anything that is inside the trust to your beneficiaries.
In some instances, a revocable living trust can save your heirs thousands of dollars in legal fees and potentially years of time.