Although you may have heard a lot about living trusts, you may not fully understand what a living trust is. There are a number of different types of living trusts, but the two basic forms are the revocable trust and the irrevocable trust. With the revocable trust, you will still remain in control of the trust and can add assets to the trust, or remove them, as you see fit. The irrevocable trust usually provides more protection from creditors and taxes, but you do lose some control of the assets in that trust.
One of the main purposes of creating a trust is not necessarily to protect your assets from taxes and creditors, but to protect the inheritance of your loved ones. If you leave someone an inheritance through a trust, those assets can be protected from creditors, as well as divorce. When you pass assets directly to a beneficiary, there is no protection. Creditors can go through court and receive a judgment against those assets. In addition to this, if your beneficiary divorces, their spouse may have a claim to a portion of those assets as well.
Another advantage of having a living trust is that you can pass assets to your heirs without the need of those assets going through probate. Technically, the assets that are held in a trust do not belong to you; therefore they are not considered part of your estate when you die. For this reason, those assets are not subject to probate or court jurisdiction. The result is that your heirs will get access to their inheritance much sooner, and the cost will be much less, because they will not have to deal with probate proceedings.
A trust also can help protect your estate from death taxes, but the rules are complex, and you will need the help of an expert estate planning attorney.
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