Different estates require very different estate planning solutions and tools, such as irrevocable trusts, to reach stated goals, such as funding a favorite charity or providing financial security to minor children. Understanding the differences between different estate planning tools is an important step to making sure that you reach your objectives. Irrevocable and revocable trusts are two types of tools that could help you to achieve your ambitions for yourself and your family, and each has its own advantages and disadvantages.
A revocable trust, as the name suggests, is totally changeable or even revocable by the person who originally created the trust, who is called the settlor or grantor. The settlor can at any time after the trust is created decide to change all or part of the trust, or even get rid of it completely. A significant disadvantage to a revocable trust is that it does not provide the settlor with any protections from creditors. In addition, the contents of the revocable trust are still considered the property of the settlor for purposes of determining eligibility for certain programs, such as Medicaid/Medi-Cal.
By contrast, an irrevocable trust cannot be changed after the trust documents are signed, even by the original settlor, except in very limited circumstances. An irrevocable trust can provide the assets with a certain amount of protection from creditors. In other words, if the settlor is sued, the assets inside the trust cannot be seized to satisfy the judgment. It should be noted, however, that any transfers of property to the trust must be done in good faith under California law. A settlor cannot simply place all of his or her assets into an irrevocable trust to avoid imminent asset seizure. Irrevocable trusts may also offer significant tax protections, as the trust is taxed as a separate entity from the settlor.
There are certain benefits that both types of trusts offer. With both revocable and irrevocable trusts, the assets contained in the trust will pass outside of probate. This can reduce estate tax liability, as well as the amount of time and expense associated with the probate process. These trusts also can also offer privacy, as avoiding the probate process means the trust documents will not be public record.
Our Irrevocable trust lawyers in Los Angeles can help you determine what type of California estate planning tools are right for you and your family. Call us today for a consultation.
