LEGAL ALLIES, TRUSTED PARTNERS

What should I know about irrevocable trusts?

On Behalf of | Dec 3, 2021 | Estate Planning

Proper estate planning can help protect your assets from situations that might deprive you of them, such as a divorce settlement. If you own assets that the state of California considers marital property, your spouse will have an entitlement to some of them. However, this may not be the case for assets that you hold in an irrevocable trust.

An irrevocable trust is a specific kind of trust that offers protection for your assets. It offers a shield against creditors who might seek your assets to pay off your debts. It may also protect assets from claims from your spouse in the event you get a divorce.

Irrevocable and revocable trusts

A revocable trust is a trust you may change or abolish at any time. While this kind of trust has its uses, it does not offer the protection of an irrevocable trust because the law still considers a revocable trust to be your property. Since you still own the assets in the trust, it is possible for creditors and your spouse to claim them.

On the other hand, you give up ownership of assets that you place in an irrevocable trust. Those assets belong to the trust itself. While you may set up a trustee to oversee the trust, you will have virtually no power to remove the trustee or alter the trust afterward.

Irrevocable trusts and prenups

Creating an irrevocable trust before you marry can also affect your prenuptial agreement. According to Kiplinger, you do not have to disclose assets you have placed in an irrevocable trust because you no longer own them.

This may be of benefit if you have qualms about disclosing parts of your personal wealth if you fear doing so will disrupt your marriage. Also, since you do not own the assets in the trust, your prenup should remain valid even if it does not disclose the existence of the trust.

Consider an irrevocable trust carefully

Be aware that creating an irrevocable trust involves giving up ownership and control over the assets you place in it, so be cautious about setting one up if you foresee wanting to change your trust. Also, make sure that the trustee you select is trustworthy and will name and maintain beneficiaries as you wish.