In the estate planning law, one of the most beneficial documents is a living trust. It’s crucial to note that not all living trusts are created equal, and one of the most consequential decisions you’ll have to make is whether you want an irrevocable living trust or a revocable living trust in California.
There’s a lot to consider, with pros and cons to each option. In this post, we’ll explain the overall merits of having a revocable living trust in California, versus having an irrevocable one. With any questions, please don’t hesitate to contact Singh Law Firm directly.
What is a Living Trust?
A good place to begin is by explaining what living trusts are, and how they can benefit you in the estate planning process.
Essentially, when you set up a trust, you’re creating a legal structure in which your assets can be managed on behalf of a beneficiary. In some cases, these assets are managed by the person who sets up the trust (the grantor). In other instances, they are managed by a third party (the trustee). More on this distinction in a moment!
Living trusts can be beneficial for a number of reasons: They may be used to shield assets from the probate process, to shield your privacy, or to minimize the estate taxes that are owed.
Revocable Trusts vs. Irrevocable Trusts
With that said, what’s the difference between a revocable living trust and an irrevocable living trust?
Here are a few distinctions of revocable trusts:
- When you have a revocable trust, you can change it at any point during your lifetime; for example, you can add or remove beneficiaries, or change the way assets are distributed to your beneficiaries.
- When you choose a revocable trust, you can manage the assets yourself; you are not required to find a third party to serve as the trustee.
- In a revocable trust, assets are not shielded from creditors.
- Assets held in a revocable trust are subject to estate taxes at both the state and federal level.
By contrast, here are the defining features of an irrevocable trust:
- When you set up an irrevocable trust, you don’t have that same autonomy to change its terms or modify its provisions.
- Irrevocable trusts can only be managed by trustees; you, the grantor, cannot be in charge of how the assets are managed. The trustee has a fiduciary responsibility to the beneficiary, meaning they must make decisions in the beneficiary’s best financial interest.
- Irrevocable trusts allow you to shield assets from creditors.
- Irrevocable trusts shield the beneficiary from estate taxes, as well as the tax on any income generated by the assets.
One more thing to note is that no matter which kind of trust you choose, it’s important to work with an attorney who can help you complete the documentation properly. Irrevocable trusts are especially tricky and require the input of an irrevocable living trust lawyer.
Which Kind of Trust is Right for You?
Ultimately, both kinds of trust have their pros and cons, and one’s not necessarily better than the other. Instead, it depends on your situation and your estate planning goals. A revocable trusts attorney can help you make an informed decision.
Singh Law Firm is here to advise you throughout the estate planning process, and in particular to guide you in selecting the right kind of trust. To speak with an irrevocable living trust lawyer or a revocable trusts attorney, we invite you to reach out to us. Contact us whenever you have questions about the California estate planning process.