Because the probate process in California can be drawn out and difficult, many residents may consider living trusts as an alternative to a will. However, it is important to understand the difference between a revocable and an irrevocable trust due to the long-term implications of each. For example, some people may think that an irrevocable trust protects an estate from creditors, but such benefits could change in the future. At the same time, changes to an irrevocable trust may be difficult to accomplish because of the nature of this type of estate planning document.
Issues could arise with irrevocable trusts if a trustee becomes unavailable because that individual typically has ownership of the assets. There is also the potential for mishandling of funds by a trustee. In a family scenario, an adult child might promote the idea of an irrevocable trust to keep an inheritance from being consumed by debts accrued from their parents’ medical issues later in life. However, parents might reject the idea of becoming bankrupt to protect their assets. With a revocable trust, many of these issues may be avoided due to the benefactor also acting as the trustee until the point at which they become incapacitated or die.
A revocable living trust does not typically shield an estate from creditors, but maintaining control of one’s assets may be more important. The revocable trust also provides a level of privacy as a parent considers how to distribute assets among children. The trust may also streamline the implementation of one’s final wishes by avoiding probate.
A lawyer with experience in estate planning and administration may be helpful in exploring a person’s options before making any firm decisions. Meeting independently with a lawyer may enable a benefactor to understand all options without a potential heir attempting to influence the decision-making process.
Source: NBR, “A matter of trusts: Benefactors, heirs and their advisors“, Maureen Niven, August 04, 2014