If you are creating an estate plan in California, you may want to use one or more trusts. Trusts may be either inter vivos or testamentary, meaning that they are either created during a person’s lifetime or by the person’s will after their death. Living trusts may be revocable or irrevocable. The former can be changed. In most cases, the latter cannot be.
Revocable and irrevocable trusts
Under those larger umbrellas, trusts can take many different forms and serve different purposes. One advantage of an irrevocable trust is that despite its lack of flexibility, it can offer greater protection from creditors and other threats than a revocable trust. One type of irrevocable trust is an irrevocable life insurance trust. You cannot change the beneficiaries or borrow against the policy once you have placed it in a trust, but it can help pay for estate-related costs after your death and can give your beneficiaries income.
There are certain complex family situations in which a trust may be the best way to ensure that your assets are used as you wish. For example, you may want a qualified terminable interest property trust if you are part of a blended family. This can help ensure that your assets go to your spouse and then to your children from a previous marriage after your spouse’s death instead of to your spouse’s children. A credit shelter trust can permanently protect assets from estate tax. A trust may also be used to help a relative with special needs.
When deciding whether to create a trust and what kind, you might also want to think about issues around estate administration and probate. Another potential advantage of a trust is that the assets in it do not have to go through probate, but you do need to appoint a trustee who can effectively manage the trust.