Benefits of Revocable Living Trusts
August 13, 2024
Trusts are a critical component to many people’s estate planning goals in California. Trusts (including) are essential tools in estate planning, allowing individuals to manage and distribute their assets according to their wishes. In California, as elsewhere, trusts are broadly categorized into revocable and irrevocable trusts. Trusts ensure that assets are not subject to probate process and to ensure that estate are administered privately and not in a public court forums. This blog will explain the differences between the two types of trust so you can better manage your assets, minimize taxes, and ensuring your estate is handled properly.
Revocable Trusts:
A revocable trust, often referred to as a "living trust," is a trust agreement that can be altered, amended, or revoked entirely by the grantor (the person who creates the trust) during their lifetime. Revocable Trusts allow you Flexibility to make changes and avoiding Probate which can be lengthy and expense. Living trust remain private documents and a trustee can manage the trust assets without court intervention.
Irrevocable Trusts:
An irrevocable trust is a trust agreement that, once established, cannot be easily altered, amended, or revoked by the grantor. Any changes typically require the consent the beneficiaries and the California courts. Once assets are placed into an irrevocable trust, the grantor relinquishes ownership and control as they are permanent in nature. Assets are generally shielded from creditors, lawsuits, and legal judgments since they are no longer owned by the grantor. Estate and Gift Tax are other benefits of irrevocable trusts. Removing assets from the grantor’s estate can reduce estate taxes and may qualify for gift tax exemptions.
One of the most common questions that potential clients of Kushner Legal ask is for clarification on the difference between Revocable and Irrevocable Trusts. While Revocable are appropriate for most people, there are time where it is prudent to consider an irrevocable trust.
The table below will highlight some of the critical differences between the two different planning tools:
| Revocable Living Trust | Irrevocable Trust | |
|---|---|---|
| How easy it to change the Trust? | Revocable Living Trusts can be modified at any time while the grantor is alive and have the capacity to make legal decisions. | Irrevocable trusts can be very cumbersome to change and can require the consent of all the beneficiaries and potentially a court order. |
| Does the Trust avoid probate? | Yes, a properly funded revocable trust will not be subject to probate. | Yes, a properly funded revocable trust will not be subject to probate. |
| Do you maintain control over your assets? | In a revocable living trust, the grantor maintains complete control over their assets, meaning they can move assets in and out of trust at any time. | No, the grantor does not maintain control over their assets. The grantor must name a Trustee, and they are no longer considered the legal or beneficial owner. |
| Are the assets protected from Creditors? | Assets in a revocable trust are not protected from creditors. | Irrevocable trusts can offer some protection from creditors but if the assets are transferred into the trust solely for the purpose of avoiding a valid debt or claim, it may be considered a fraudulent conveyance. |
California-Specific Considerations
While the fundamental principles of revocable and irrevocable trusts are consistent across the United States, California has specific laws and regulations that may impact how these trusts are established and managed:
- Community Property State: California is a community property state, meaning that assets acquired during marriage are generally owned equally by both spouses. This can influence how trusts are set up, especially for married couples looking to optimize asset distribution and tax benefits.
- Probate Code: California's Probate Code outlines the rules and procedures for trusts, including requirements for trust formation, administration, and modification (for revocable trusts).
- Tax Laws: California conforms to federal estate tax laws but has its own state-specific rules that may affect estate planning strategies involving trusts.
Deciding to set up a Trust -based estate plan in California is an important decision for many people. It is advisable to consult with an experienced California estate planning attorney who can meet with you and discuss all of the different options which may be available. We can go over common types of trust available in Beverly Hills, California.
Contact Kushner Legal Corporation in Beverly Hills, CA today to schedule a estate planning consultation.
