Do you need a revocable trust or an irrevocable trust.
One question that crops up a lot is do I need a revocable trust or an irrevocable trust?
Many people in California need to create a revocable trust if they want their family to avoid having to deal with the California probate process.
Revocable trusts can also be used to ensure that the inheritance you leave behind will not be lost if your children get sued or divorced.
Irrevocable trusts are used for more complex planning, typically in two situations.
One is where your family could potentially have to pay estate tax on their inheritance. Currently, each person can leave behind around $12 million, and you can double that for married couples before estate tax kicks in. So it’s not every family that has to pay this tax.
For those families that may be subject to estate tax, Irrevocable trusts are often used to transfer assets out of your estate and lower your tax exposure.
Note that it’s likely that the $12 million threshold will be cut to around $6 million in 2026, bringing more families potentially into the estate tax net.
The other situation where irrevocable trusts are often used is where asset protection is a particular concern.
Asset protection involves creating structures that protect your assets from creditors, bankruptcy or lawsuits.
Creating an irrevocable trust, often in states that have strong asset protection laws, such as Nevada or Delaware.
One method that can be used to create a structure that will shift the balance of power in your favor if you were to be sued.
These kinds of trusts are as much about psychology as they are about legal efficacy. If you’re sued by someone and they see that you have an asset protection trust set up, they will be more likely to come to the table to negotiate a settlement, as they will not want to spend the time and resources arguing over the efficacy of the trust in a court battle.
