California residents who create irrevocable trusts are often ceding control of their assets to another person or entity. Generally speaking, this is only beneficial for those who are looking to minimize their state or federal estate tax liabilities. It may also be beneficial for those who are looking to qualify for government programs or to protect their assets from creditors. A person who is looking to may be able to minimize an estate tax bill by creating a life insurance trust.
It may also be possible to create a grantor retained annuity trust or a charitable remainder trust. Both of these tools allows a person to receive a portion of the income generated by the trust until death. In some cases, family members may also be eligible to receive a portion of any income that it produces.
By holding assets outside of an estate, they generally aren’t included when calculating a person’s income or net worth. Therefore, those who want to participate in Medicaid or similar programs can retain assets while still meeting income or other financial guidelines. Furthermore, as a person doesn’t control assets held in an irrevocable trust, creditors are generally not allowed to seize them for any reason. However, asset protection trusts are only valid in some states.
While creating a trust may help a person meet his or her estate planning goals, this isn’t always the case. An attorney may be able to talk more about the process of creating a trust, the different types that exist and if this type of tool best meets a client’s needs. Legal counsel may also be able to review an existing trust to determine if it conforms to state law.