A revocable living trust helps California residents pass on their assets to heirs in a way that bypasses probate. However, some people may wonder what an irrevocable living trust is and how it compares to a revocable trust. The two, according to Smart Asset, have important differences. The type of trust that you might want to use will depend on your needs and wishes for your estate.
Control over the trust is the major difference between these two types of trusts. Revocable living trusts can be changed or even abolished at your discretion. If you do not want a certain person to be a beneficiary of your trust any longer, you have the authority to remove that person. An irrevocable living trust does not afford you these powers. Once the trust is set up, you cannot change or abolish it on your own.
When a person places assets into an irrevocable living trust, the person gives up ownership rights over the assets. This is why you cannot eliminate an irrevocable living trust by yourself. You would need the consent of the beneficiaries of the trust to change or abolish it. If, for instance, you wanted to remove a beneficiary from the trust, the beneficiary would need to agree to it.
It might seem like setting up an irrevocable living trust is not a wise move, but people have sound reasons for utilizing an irrevocable trust. Since the assets in a revocable trust are still yours, you still must pay taxes on the income derived from the trust assets. Conversely, assets in an irrevocable living trust belong to the trust itself, so you do not have to pay taxes on them.
U.S. News and World Report explains that irrevocable trusts can be used to shield assets from creditors. Since assets in an irrevocable trust are no longer yours, creditors do not have the right to seize them to collect on debts, although this may only apply if you put assets in the trust before any credit problems had developed. Irrevocable trusts are also established to put money away for a disabled beneficiary or to shelter assets from professional liability.
Revocable and irrevocable trusts can handle many different issues. However, any California resident looking to plan their estate should be aware of any and all alternatives that can be of better service. Consultation with an estate planning attorney on the issue of trust creation can help answer many questions that you may have.