For most families, a revocable living trust serves as the foundation of a comprehensive estate plan. It allows you to retain control over your assets during your lifetime while creating a structure for those assets to pass to your beneficiaries without probate. Irrevocable trusts serve different purposes and may be considered when a person has more advanced asset-protection, tax, or long-term planning goals.
The right answer is therefore not simply whether a revocable or irrevocable trust is "better." The appropriate trust depends on what you need your estate plan to accomplish.
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What Is a Revocable Living Trust?
A revocable living trust is established during your lifetime and generally allows you to continue managing and controlling the assets placed in it.
Because the trust is revocable, you ordinarily retain the ability to modify it as your family, assets, or planning goals change. When properly established and funded, it can also help assets pass to your beneficiaries without going through probate.
For many California families, these characteristics make a revocable living trust the starting point for an effective estate plan.
Why Do People Use Revocable Living Trusts?
A properly funded revocable trust can help provide continuity during your lifetime and a more orderly transfer of assets after death.
One of its primary advantages is the ability to avoid probate for assets properly held in the trust. Probate can involve additional delays, paperwork, expenses, and public court proceedings that many families would prefer to avoid.
However, simply signing a trust is not enough. The appropriate assets also need to be coordinated with the trust. The firm's guide to funding a California living trust explains why this step is so important.
What Is an Irrevocable Trust?
An irrevocable trust generally requires the person establishing it to give up a greater degree of individual management, access, or control over the assets transferred into the trust.
That loss of flexibility is one reason an irrevocable trust is not automatically the right choice simply because it may offer certain additional planning opportunities.
Instead, irrevocable trusts are usually considered when a particular planning objective justifies the restrictions associated with the trust.
When Might an Irrevocable Trust Be Considered?
Depending on a person's circumstances and planning objectives, an irrevocable trust may be used as part of more advanced planning involving issues such as:
- Protecting certain assets from creditors
- Reducing potential estate tax exposure
- Planning for potential long-term care needs
- Qualifying for certain needs-based public benefits
- Other specialized asset-protection or wealth-transfer objectives
Because these strategies can involve giving up significant rights over property, they should be considered carefully and implemented with professional guidance.
Can You Have Both Revocable and Irrevocable Trusts?
Yes. These trusts do not necessarily have to be an either-or decision.
A revocable living trust may serve as the primary foundation of an estate plan, while one or more irrevocable trusts may later be added to address particular assets or advanced planning objectives.
This is one reason estate planning should be viewed as an ongoing process rather than a collection of documents that are signed once and forgotten.
Which Type of Trust Is Right for You?
For most families, the starting point is determining whether a revocable living trust can accomplish the primary goals of managing assets during life, planning for incapacity, directing inheritances, and avoiding unnecessary probate.
Irrevocable planning can then be evaluated if your assets, tax exposure, long-term care concerns, creditor risks, or other objectives call for additional strategies.
Build Your Trust Around Your Actual Planning Goals
The most useful trust is the one designed around your circumstances rather than simply choosing a trust because its name sounds more protective.
Learn more about creating a comprehensive California estate plan, or attend a free estate planning seminar from Kavesh, Minor & Otis to better understand the options available to you.
