If you are creating an estate plan in California, you may wonder whether a trust would be a useful tool for you. One of the first things you will need to decide is whether you need a revocable or irrevocable trust.
Changing a trust
One of the major differences in the two is that a revocable trust can be changed or even canceled while an irrevocable trust generally cannot be. An irrevocable trust effectively removes whatever you put into it from your estate, and you no longer have control over those assets. This is balanced by the fact that an irrevocable trust offers greater protection, including shielding those assets from creditors and offering tax benefits.
Pros of revocable trusts
However, not everyone needs the additional protections offered by an irrevocable trust, and for those people, a revocable trust could be a good choice. It still offers privacy, unlike a will, and can also allow the grantor to specify how distributions should be made to beneficiaries. This can be useful if the grantor is worried about how beneficiaries might spend their money or only want them to have access to it after reaching specific milestones, such as a certain age or stage in their career.
Estate tax and trusts
People with high net worth may need an irrevocable trust to protect their assets from estate tax. Another important consideration is that the estate tax exemption can change, so in the future, you might want to consider an irrevocable trust even if you do not need one now.
Trusts can be complex documents, and there is a cost to their administration. However, for some people, they can be the best solution to a number of challenges that can arise while trying to maximize an estate’s value.