The benefits and pitfalls of revocable, irrevocable trusts

On Behalf of | Feb 8, 2023 | Estate Planning

Most people who create California estate plans include wills in them, but not as many choose to supplement their plans by adding trusts. You may be remiss not to consider this option, though, because there are many important benefits that come with establishing trusts. While many different types of trusts exist, trusts typically fall into one of two categories: revocable or irrevocable trusts.

According to NerdWallet, the primary difference between revocable and irrevocable trusts is in the name. When it comes to revocable trusts, you have the option to modify them at any time. With an irrevocable trust, the terms and stipulations set therein are unchangeable unless all beneficiaries named in the trust agree to a proposed modification. Revocable and irrevocable trusts differ in other ways, too, and there are advantages and disadvantages associated with each.

Revocable trusts

The assets you enter into a revocable trust bypass probate, which often saves time and money. The details of this type of trust also remain private. This type of trust is ideal for helping you control beneficiary spending, and you may also use it to plan for incapacity. However, there are no real tax benefits that come with creating a revocable trust. This type of trust also fails to protect beneficiaries from creditors.

Irrevocable trusts

Like revocable trusts, irrevocable trusts avoid probate, and the details about what is inside remain private. They also offer tax benefits and protection from beneficiary creditors. An irrevocable trust also helps you plan for incapacity. However, you relinquish some control when you create an irrevocable trust and turn that control over to your trustee.

The type of trust that might serve your needs most favorably is going to depend on specific estate planning goals and objectives.