LA Probate Law Explains Revocable vs. Irrevocable Trusts
When it comes to understanding trusts, knowing the difference between revocable and irrevocable trusts is crucial. If you ask for a revocable trust and get an irrevocable one, or vice versa, the legal and tax consequences will be significant. A California Revocable Living Trust is an excellent way to protect your assets, ensure their proper distribution upon death, avoid leaving your estate subject to probate court proceedings, and even realize certain tax advantages. LA Probate Law, our comprehensive law practice, which includes a thriving estate planning department in addition to business litigation and other types of law, is well-suited to providing you and your family with comprehensive estate planning. Irrevocable trusts are the easier of the two to understand. After you place property into an irrevocable trust, you can’t retrieve the property. For all intents and purposes, that property now belongs to the trust, not to you!
A Revocable Living Trust, also called a Revocable Trust or Living Trust, is simply a type of trust that can be changed at any time. In other words, if you have second thoughts about a provision in the trust or change your mind about a trust beneficiary or fiduciary, then you can modify the terms of the trust through what’s called a trust amendment. Or, if you decide that you don’t like anything about the trust at all, then you can either revoke the entire agreement or change the entire contents through an amendment and restatement. In California, any estate valued at more than $100,000 is subject to probate court, which will open your estate to public viewing through the court system and subject it to additional court and attorney fees. Most working families who own a home will have an estate that crosses this threshold states LA Probate Law. Transferring your property into a living trust will not subject it to re-evaluation under Proposition 13 and distribution of assets through a living trust will not be subject to probate court upon your death. With a revocable trust, you can not only remain in control of your assets (as the trust administrator) but, as the title suggests, you can revoke the trust at any time. Such trusts are a great way to ensure your home and other assets remain protected throughout your life and are distributed in accordance with your wishes after your death. Since Revocable Living Trusts are so flexible, why aren’t all trusts revocable? The down side to a revocable trust is that assets funded into the trust will still be considered your own personal assets for creditor and estate tax purposes. This means that a revocable trust offers no creditor protection if you’re sued and all assets held in the name of the trust at the time of your death will be subject to both state and federal estate taxes.
An irrevocable trust is simply a type of trust that can’t be changed after the agreement has been signed, or a revocable trust that by its design becomes irrevocable after the Trustmaker dies. With the typical Revocable Living Trust, it will become irrevocable when the Trustmaker dies and can be designed to break into separate irrevocable trusts for the benefit of a surviving spouse, such as with the use of AB Trusts or ABC Trusts, or into multiple irrevocable lifetime trusts for the benefit of children or other beneficiaries. Irrevocable trusts can take on many forms and be used to accomplish a variety of estate planning goals. Irrevocable trusts, such as Irrevocable Life Insurance Trusts, are commonly used to remove the value of property from a person’s estate so that the property can’t be taxed when the person dies. In other words, the person who transfers assets into an irrevocable trust is giving over those assets to the trustee and beneficiaries of the trust so that the person no longer owns the assets explains LA Probate Law. Thus, if the person no longer owns the assets, then they can’t be taxed when the person later dies. Another common use for an irrevocable trust is to provide asset protection for the Trustmaker and the Trustmaker’s family. This works in the same way that an irrevocable trust can be used to reduce estate taxes – by placing assets into an irrevocable trust, the Trustmaker is giving up complete control over, and access to, the trust assets and, therefore, the trust assets can’t be reached by a creditor of the Trustmaker. Another common use of an irrevocable trust is to accomplish charitable estate planning, such as through a Charitable Remainder Trust or a Charitable Lead Trust.
Hiring an experienced trust attorney will allow you to establish the trust, outline who will administer it in the event you die or become incapacitated, detail who will receive trust assets upon your death, and plan for funding the trust by transferring property and other assets into trust ownership. Additionally, because you (or a designated trustee) remain in charge of the trust, changes and additions can be made as needed to accommodate marriages, divorces, births, deaths, changing assets or other life events. Upon death, your trustee will carry out the instructions set forth in the trust, including the distribution of assets to named beneficiaries. And, while your trust will be subject to taxation, an experienced and qualified attorney can advise you on options to reduce or even eliminate certain tax exposure. LA Probate Law understands the importance of properly protecting your assets and the future financial well-being of your family and we believe anyone dealing with estate-planning issues deserves immediate access to skilled legal representation.
LA Probate Law Explains Revocable vs. Irrevocable Trusts
Latest posts by Scott Schomer, Estate Planning Attorney (see all)
- SALT Deduction Limit…Can You Get Around It? - February 4, 2019
- What Can a Los Angeles Probate Attorney Do For You? - February 3, 2019
- 5 Great Tips for Long Beach Probate Court Administration - February 1, 2019