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Living trusts generally fall into two primary categories: revocable trusts and irrevocable trusts. Although both are used within estate planning, they operate differently with respect to control, flexibility, taxation, and asset management.
Understanding these distinctions is important before transferring assets into either structure.
A revocable living trust is a trust that may generally be amended, modified, or revoked during the grantor’s lifetime.
In many California estate plans:
Assets properly titled in a revocable trust generally avoid probate upon death.
Common characteristics include:
• flexibility during life
• continued control by the grantor
• probate avoidance
• incapacity planning
The trust typically becomes irrevocable upon the grantor’s death or incapacity.
An irrevocable trust generally cannot be changed once established except in limited circumstances.
Unlike revocable trusts:
Irrevocable trusts are commonly associated with:
Common characteristics include:
• reduced grantor control
• possible tax planning benefits
• potential asset protection advantages
• separate EIN requirements in many cases
Transfers into irrevocable trusts may also involve gift tax considerations under IRC §2512.
The majority of California residents who create trusts for general estate planning purposes use revocable living trusts.
Irrevocable trusts are generally used in more specialized planning situations involving taxation, asset protection, or eligibility considerations.
Both revocable and irrevocable trusts require proper funding in order to function as intended.
This may involve:
Without proper funding, assets may remain outside the trust structure.
Estate planning documents must meet legal requirements.
This may include:
• Signatures
• Witnesses
• Notarization
Why It Matters
Improperly executed documents may be invalid or subject to challenge.
Original documents should be stored securely and be accessible when needed.
Consider:
• Fireproof storage
• Secure document location
• Providing copies to designated individuals
Why It Matters
If documents cannot be located, the estate plan may not be properly carried out.
Revocable and irrevocable trusts serve different purposes within estate planning. The appropriate structure depends on the individual’s goals, level of control desired, and overall planning considerations.
Eric Hawkins is a California Legal Document Assistant. Legal Document Assistants are not attorneys and cannot provide legal advice, select forms for you, or tell you which documents you need. LDAs can only prepare documents at your specific direction after you've made decisions about your legal matters, ideally with guidance from an attorney.
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