Most people know what a will is, but are far less familiar with living trusts. A last will and testament is often the backbone of a successful estate plan, but living trusts offer a number of benefits as well.

There are two types of living trusts. The first type of living trust is a revocable living trust. The second type is an irrevocable living trust. According to Experian, living trusts can help you get through probate much faster and potentially avoid taxation.

What is a revocable living trust?

Revocable living trusts offer maximum flexibility. As long as you are alive, you can change the terms of the trust as much as you like and everything that is in the trust belongs to you. When you die, your named successor will distribute everything that is in the trust according to your wishes.

The main benefit of a revocable living trust is avoiding probate. Anything that is in the trust will get to your named beneficiaries without the interference of the courts.

What is an irrevocable living trust?

With an irrevocable living trust, as soon as you sign the initial paperwork you cannot change any of the terms. Additionally, anything that you put into the trust becomes the legal property of the trust and is not yours anymore.

The main benefit of an irrevocable living trust is that anything in the trust will avoid estate taxes since it is not your legal property. Also, creditors cannot go after anything in the trust for debt repayment. However, if you put assets in an irrevocable living trust with the intent to defraud creditors, there are serious penalties associated with this.