Revocable Trusts vs. Irrevocable Trusts: What Californians Need to Know

When it comes to estate planning, trusts are powerful legal tools that provide flexibility and control over how your assets are managed and distributed. In California, understanding the differences between revocable trusts and irrevocable trusts is essential for making the best decisions for your financial future and protecting your legacy. At Susan B. Geffen Law in Los Angeles, we help clients navigate the complexities of estate planning to ensure their goals are met while adhering to California-specific laws.

What Is a Trust?

A trust is a legal arrangement that allows a trustee to hold and manage assets on behalf of beneficiaries. Trusts are often used to avoid probate, protect assets, and minimize estate taxes. According to the California Department of Justice, the probate process can take anywhere from 9 months to over a year and result in substantial fees—making trusts an attractive option for estate planning.

The two main types of trusts are revocable trusts and irrevocable trusts. Each has its own benefits, limitations, and purposes.

What Is a Revocable Trust?

A revocable trust, often referred to as a living trust, is a flexible estate planning tool. The trust creator (grantor) retains control over the trust assets and can modify, revoke, or terminate the trust at any time during their lifetime.

Benefits of a Revocable Trust:

• Avoids Probate: Assets held in a revocable trust bypass the probate process, saving time and money.
• Flexibility: The grantor can amend the terms of the trust, change beneficiaries, or adjust assets as circumstances change.
• Privacy: Unlike wills, which become public records during probate, trusts remain private.
• Continuity of Management: If the grantor becomes incapacitated, the trustee can manage the assets without the need for court intervention.

Limitations:

• No Asset Protection: Since the grantor retains control, the trust assets are not protected from creditors or lawsuits.
• Tax Exposure: Assets in a revocable trust are considered part of the grantor’s taxable estate.

What Is an Irrevocable Trust?

An irrevocable trust is one that cannot be altered or revoked once it’s created, except under very limited circumstances. When the grantor transfers assets into an irrevocable trust, they relinquish control over those assets.

Benefits of an Irrevocable Trust:

• Asset Protection: Assets in an irrevocable trust are shielded from creditors, lawsuits, and estate taxes.
• Tax Advantages: By removing assets from the grantor’s taxable estate, irrevocable trusts can significantly reduce estate tax liability.
• Medicaid Planning: Irrevocable trusts are often used in California for Medicaid planning to protect assets while qualifying for long-term care benefits.

Limitations:

• Inflexibility: Once established, the terms of the trust cannot be easily changed.
• Loss of Control: The grantor gives up ownership and decision-making power over the trust assets.

Trusts and California-Specific Considerations

In California, estate planning must account for both state and federal laws, including community property rules and high real estate values that often push estates above the federal estate tax exemption threshold (currently $12.92 million in 2023).

• Community Property: In California, assets acquired during marriage are generally considered community property, which can impact how trusts are structured.
• Proposition 19: Recent changes to California’s property tax laws under Proposition 19 can affect how real estate in a trust is treated when transferred to beneficiaries.

Additionally, California’s high cost of living and lengthy probate process make trusts a valuable tool for preserving wealth and ensuring a smooth transition of assets.

Which Trust Is Right for You?

Choosing between a revocable and irrevocable trust depends on your specific goals. A revocable trust is ideal for those seeking flexibility and probate avoidance, while an irrevocable trust is better suited for asset protection, tax minimization, or Medicaid planning.

At Susan B. Geffen Law in Los Angeles, we work closely with clients to evaluate their needs, educate them on their options, and craft customized estate plans that reflect their values and priorities.

Why Trusts Matter

A trust not only provides financial security but also ensures that your wishes are honored. By avoiding probate, protecting assets, and potentially reducing tax burdens, trusts are a cornerstone of effective estate planning.

If you’re ready to explore whether a revocable or irrevocable trust is right for you, contact Susan B. Geffen Law today. Our team is dedicated to helping California residents navigate the complexities of estate planning with confidence and peace of mind.

Schedule a consultation today to protect your assets and secure your legacy.