When it comes to estate planning, you have a couple of main options to consider. One is creating a will, and the other is creating a trust. If you want to avoid the time-consuming and costly process of probate, the choice is simple and easy. Go with a trust, which you retain some control over while still alive.
Besides avoiding probate, a trust also may provide other benefits such as saving on estate taxes as well as protecting your assets from creditors, judgments and an ex-spouse seeking money from a divorce settlement. But the main thing is that you want to avoid probate, and you can do so with two of the more common types of trusts: revocable and irrevocable.
Consider revocable or irrevocable trusts
With a will in place, an estate plan must go through the probate process. This has many steps such as authenticating the will, paying outstanding debts and taxes and settling disputes among heirs. Oh, and, since a will is involved it is also a matter of public record. Anyone can view the files at a clerk of courts office.
You can sidestep these issues by having a trust as part of your estate plan. With trusts, the routes that most people pursue are revocable or irrevocable trusts. Here are some key differences in these types of trusts:
- You can change a revocable trust at any time. You can only do so with an irrevocable trust under rare situations.
- Since the assets in your revocable trust remain under your control, they are not protected from creditors or judgments and lawsuits. On the other hand, an irrevocable trust protects your assets in similar situations.
- Assets in a revocable trust can be seized to pay for state and federal taxes. Assets in irrevocable trusts are not subject to estate taxes.
- You can be the trustee of a revocable trust. You generally will not be the trustee of an irrevocable trust.
If among your estate planning goals includes avoiding probate, seriously consider creating a trust. You, your estate and your family will benefit in many ways.