Revocable vs. Irrevocable Trusts

Revocable vs Irrevocable Trusts

Trusts are powerful estate planning tools that offer individuals the ability to manage their assets during their lifetime and control their distribution after their passing. Among the various types of trusts, revocable and irrevocable trusts stand out as popular choices, each serving distinct purposes based on individual needs and objectives. In this blog post, we delve into the differences between revocable vs. irrevocable trusts, exploring their features, advantages, and considerations.

What Is A Revocable Trust?

A revocable living trust is a commonly used type of trust that allows the settlor (the trust’s creator) to make changes or revoke the trust at any time during their lifetime. The trust creator continues to use and manage their assets until their death. Then their successor trustee takes over and distributes the assets to the trust beneficiaries. 

Here are some key characteristics of a revocable trust:

Flexibility: One of the primary advantages of a revocable trust is its flexibility. The grantor retains the ability to modify, amend, or revoke the trust document at any time during their lifetime, giving them control over the trust assets.

Probate Avoidance: Assets placed within a revocable trust typically bypass probate, the court-supervised process of distributing assets after death. This can result in faster and more private asset distribution compared to assets passed through a will.

Privacy: Unlike wills, which become public record upon probate, revocable trusts offer greater privacy as they are not subject to the probate process. This confidentiality can be appealing to individuals who prefer to keep their estate matters private.

Incapacity Planning: A revocable trust can also provide for the management of assets in the event of the grantor’s incapacity. Since the trust is revocable, the grantor can appoint a successor trustee to manage the trust assets if they become unable to do so themselves.

What Is An Irrevocable Trust?

An irrevocable trust is a trust that cannot easily be changed or revoked once created. While less popular than revocable trusts, irrevocable trusts can be useful for reducing estate tax exposure and protecting from creditors or lawsuits. 

Here are some key characteristics of an irrevocable trust:

Asset Protection: Irrevocable trusts are often used for asset protection purposes. Once assets are transferred into an irrevocable trust, they are no longer considered the grantor’s property and are generally shielded from creditors and legal judgments.

Estate Tax Planning: Irrevocable trusts can be structured to minimize estate taxes by removing assets from the grantor’s taxable estate. Certain types of irrevocable trusts, such as irrevocable life insurance trusts (ILITs) or qualified personal residence trusts (QPRTs), can help reduce estate tax liability.

Limited Control: Unlike revocable trusts, irrevocable trusts offer limited control over trust assets. Once established, the terms of the trust generally cannot be changed, and the grantor relinquishes ownership and control over the assets.

Which Type of Trust Is Best For You?

Selecting the type of trust that’s best for you will depend on your personal situation and goals. In California, revocable trusts are the most popular option because of their flexibility. 

You may want to consider a revocable trust if:

  • You want to avoid the time, expense, and publicity of a California probate proceeding.
  • You want to maintain the flexibility to change your estate plan later on, including your successor trustee and beneficiaries.
  • You want to continue using and managing your assets without restriction after you establish the trust.
  • The value of your estate is less than the federal estate tax exemption. In 2024, this amount is $13.61 million per individual (a combined $27.22 million for a married couple).

You may want to consider an irrevocable trust if:

  • The value of your assets exceeds the federal estate tax exemption and you want to sidestep estate taxes.
  • You’re comfortable giving up using and managing your assets after you establish the trust.
  • You want to protect your assets from future creditors or lawsuits. 

Revocable and irrevocable trusts offer unique benefits and considerations depending on individual circumstances and estate planning objectives. For individual counsel regarding which type of trust is best for you, consult an experienced estate planning attorney

If you have any questions about revocable vs. irrevocable trusts, feel free to contact our law firm.

Law Offices of Daniel A. Hunt

The Law Offices of Daniel A. Hunt is a California law firm specializing in Estate Planning; Trust Administration & Litigation; Probate; and Conservatorships. We've helped over 10,000 clients find peace of mind. We serve clients throughout the greater Sacramento region and the state of California.