When you begin to investigate estate planning, it doesn’t take long before you start to hear about the benefits of creating a trust. Using trusts can be an effective way to pass assets to your heirs outside of probate. However, it is important to be able to differentiate between the different types of trusts to plan effectively for your estate. When it comes to using California revocable and irrevocable trusts, you need to know: What is the difference, and why does it matter?
What is a Trust?
A trust is a legal device wherein a trust creator or grantor can direct assets. Once the assets are placed there, they become the legal property of the trust. Unlike personally owned assets, trust assets will not have to be distributed to beneficiaries through probate. Depending on the trust terms, the property can remain in the trust for the beneficiaries benefit or pass to them upon the grantor’s death. Having your property in a trust also reduces the overall size of your probate estate, thereby excluding assets from the process. Additionally, if your estate is small enough, it may bypass probate altogether.
California Revocable Trusts
California revocable trusts or grantor trusts can be created in a manner which allows you to receive benefits from the trust without being the legal owner. You can also be the grantor, trustee, and trust beneficiary all at the same time. As the name implies, a revocable trust allows the grantor to make changes and remove assets from the trust. Because the grantor has this power, revocable trust assets are not protected from legal recovery to satisfy the grantor’s obligations. If, for example, the grantor was to be successfully sued by a creditor, the trust assets would be reachable for purposes of paying an award to the other party.
Irrevocable trusts also permit the grantor to place assets into the trust. However, these trusts do not allow the grantor to make changes or to be the trustee. A key difference and one of the main benefits of an irrevocable trust is that, in most instances, the grantor’s future creditors will not be able to reach the trust assets. However, California law does allow recovery for specific claims, namely child support, alimony, and tax debts. Additionally, although an irrevocable trust sounds as if it cannot be modified, the law does permit trust termination and modification in specific circumstances such as when the trust’s purpose can no longer be fulfilled.
Choosing the right type of trust is a complicated decision which depends heavily on your situation. At the Law Offices of Alice A. Salvo, we have experience with California trust and estate planning and can help you develop the right plan for your goals. Schedule a consultation today to explore your options and make informed decisions. /