There are many reasons to set up a trust. Some people put assets and property into a trust so their family members can skip the headache of probate. Others hope to protect their assets from creditors. Setting up the right trust for you will depend on your circumstance and what goals you have with your property and assets.
Broadly speaking, there are two major types of trusts. These trusts are revocable and irrevocable in nature. The key difference between the two trusts is that a revocable trust (also called a living trust) may be altered. But irrevocable trusts are “irrevocable” because no one can change them—not even the person who created them.
Three reasons for an irrevocable trust
Why might it be beneficial to have a trust no one can change? You may want to do this for several reasons. For instance:
- You may want your property protected from creditors– There are a few irrevocable trust types that protect assets. Technically, the creator of the trust will no longer own the property that is under it. This removes the right for any creditor to obtain it.
- You may want to set up a gift that avoids tax implications – As a beneficiary inherits property through a trust, they inherit property that held no value. So, estate tax may not be enforced.
- You may want to set up a charitable trust – Like other irrevocable trusts, charitable trusts receive protection. This ensures that the assets distribute to the grantor’s desired charity organization.
Reasons for a revocable trust
While it cannot help you protect your assets the way an irrevocable trust can, revocable trusts still come with benefits:
- You will avoid the probate process – California probate can be quite expensive, making it worth it for grantors to pay the legal fees necessary to set up a trust. Probate is also a public procedure. High-asset probate cases may not receive the privacy the heirs desire when probate comes.
- Revocable trusts are changeable – Perhaps the foremost reason to set up revocable trust is that you may update it throughout your life. For example, you may find yourself in a situation where you no longer trust the original beneficiary and you want to make a change.
Whichever trust type is right for you will depend on what you want for the future of your property. Both irrevocable and revocable trusts give you control, but they each function quite differently.