California residents who feel they have some assets to protect may be wondering whether a trust is the right choice and what type of trust they may need. Trusts might be a good choice for individuals who are planning their estates and need to protect their assets from potential creditors or who want to make sure the money they leave behind is properly administered when they are unable to do so. Trusts may result in tax advantages for the very wealthy, and they can provide more privacy than a will.
However, the right choice of trust based on the structure and benefits offered depends upon the financial situation of the individual and the aim in setting up the trust. A revocable trust offers greater control but fewer benefits while an irrevocable trust takes most of the control away but gives greater benefits.
A revocable trust offers no tax benefits, but as the estate tax exemption for married couples is now $10.6 million, few families will need a trust for this purpose. A revocable trust is a good option for anyone who wants to leave directions for the use of assets in the case of death. When that happens, it becomes an irrevocable trust.
An irrevocable trust does offer tax advantages for the very wealthy. The other main uses of an irrevocable trust are for circumstances such as supporting a dependent who is disabled or who should not control the assets for some reason or for protecting assets from professional liability or personal creditors. In the latter case, the trust has to be set up prior to the credit problems. Decisions regarding an irrevocable trust are made by trustees, and there is no control by the individual who establishes it.
Source: USA News, “How to Choose Between a Revocable and Irrevocable Trust“, Joanne Cleaver, June 19, 2014