Trusts are an integral part of a solid estate plan. While they are often thought of as a tool for the very rich, they can also be useful for average people, like yourself. The key is to choose the right type of trust for your estate planning needs.
According to U.S. News & World Report, revocable and irrevocable trusts are the most common. This guide explains the differences between the two, so you can make an informed decision.
Revocable trusts
Revocable trusts are a great tool to help avoid probate. While assets included in your will may be subject to probate, assets and property included in your trust will not be. This alleviates a lot of the hassle of estate planning, since the trust ensures that assets pass on to your specified heirs.
While beneficial, revocable trusts offer no protection from taxes or lenders making debt collection attempts. Because you can change the terms of the trust, you are considered the owner of any assets within.
Irrevocable trusts
Conversely, irrevocable trusts cannot be changed by you without approval from the trustee or another party. Once they are funded, the trust owns your assets until you die, and they are inherited by your beneficiaries. While this prevents you from making changes to the trust, it also benefits you from a tax perspective.
Because you are no longer considered the owner of these assets, you will not be required to pay taxes on them. Lenders are also not permitted to seize assets within an irrevocable trust when attempting to recover a debt.
Estate planning is vital to protect your assets and take care of your family after you are gone. Because the process is often complex, it is best to seek the services of an attorney to ensure your estate plan is solid.