Understanding Irrevocable vs. Revocable Trusts

Most people understand the importance of having a will (at a minimum) in their estate plan. But most people are unaware of the many other tools that can be utilized to make their end-of-life wishes come true.

Trusts and Their Role in Estate Plans

One of these tools is known as a trust. A trust creates a relationship with a third party, who is then bound to hold and distribute the trust's assets on behalf of its creator. How is this beneficial and why do trusts exist? There are many reasons such as:

  1. Your trust can direct the trustee (the third party) to distribute assets according to a schedule you establish. This is useful for passing money to children at select intervals, helping to teach them financial responsibility, to provide for education costs and to prevent someone from inheriting money as a lump sum.
  2. Trusts can be drafted to protect your assets from creditors and the IRS, helping to preserve your assets and your legacy.
  3. Trusts are private documents. This means that unlike the probate process, which is a matter of public record, everything you place in your trust will be hidden from the public eye. Any asset placed in a trust will not go through California's probate administration process.
  4. Trusts play an important role in saving time and money. Passing a will through probate can take months or years, especially if someone elects to contest your will. In many cases, having a living trust can reduce this time down to a few weeks, as well as significantly reduce costs that must be paid out of your estate.

What Types of Trusts Are There?

There are many types of trusts that could fit nicely into your estate plan. For example, a disability trust could allow you to provide for a disabled child or adult after death. Other examples include charitable trusts, which can distribute assets to your favorite charity, life insurance trusts, credit shelter trusts and more. By far, the most common and widely used trusts, however, include:

  • Revocable trusts: A revocable trust is also known as a "living trust," which can be changed anytime during its creator's life. This provides the benefit of changing provisions should your needs or situation change. The downside, however, is that assets placed in a revocable trust are not protected from creditors as the assets are considered the creator's personal property. Revocable trusts become irrevocable upon death.
  • Irrevocable trusts: An irrevocable trust cannot be changed after the trust is created. They are commonly used to reduce estate taxes, protect assets and more.

Find Out if You Can Benefit From a Trust: Contact Us

Is a trust right for you and your family? Find out today by speaking with estate planning attorney Paul W. Holmes during a free initial consultation. You may contact our firm online or by calling 510-402-1582 to speak directly with a lawyer.