A lot of people have misconceptions about trusts, and most of them do not confirm their ideas by speaking with attorneys. As a result, mistakes are made, and the surviving family members often pay the price.
One of the myths that we are talking about is the idea that you lose control of assets that you transfer to a trust, and you can never change your mind later on. They say that a little bit of information is a dangerous thing, and this phenomenon applies to the subject.
Irrevocable Trusts
Indeed, there are trusts that cannot be revoked or changed under most circumstances. If you establish and fund an irrevocable trust, you are surrendering incidents of ownership of the assets that will be held by the trust. This can provide certain desired benefits.
For example, there is a trust called a self-settled asset protection trust. These devices are alternately referred to as domestic asset protection trusts. This is an irrevocable trust, so you no longer have direct access to the assets that you convey into it.
However, you could potentially receive distributions of the trust’s earnings or portions of the principal at the discretion of the trustee. If creditors sue you after you have established the trust, the assets would be protected.
These trusts are not recognized in California, but you could potentially establish a self-settled asset protection trust in Nevada.
There are limited exceptions to the rule with regard to changing the terms of an irrevocable trust. The trustee or the beneficiaries could be given a power of special appointment that would allow for revisions. A third-party trust protector may be empowered to change the terms.
In some cases, trustee and beneficiary modifications are built into the original trust declaration, and judicial modifications are also possible.
Irrevocable trusts are also used by high-net-worth individuals that are exposed to estate taxes. This type of trust can be utilized to qualify for Medi-Cal to pay for long-term care.
They are used for special needs planning purposes as well, and we will look at all of these trusts in more depth at another time.
Revocable Living Trust
The most commonly used trust in the field of estate planning is the revocable living trust. As the name would indicate, you can in fact revoke or rescind this type of trust at any time after it has been created. You can also adjust the terms for any reason or no reason at all.
Since you retain incidents of ownership, creditors would be able to go after assets in the trust, and they will count if you apply for Medi-Cal. They would also be part of your taxable estate, but there are other reasons why you may want to use a revocable living trust.
One of them is the avoidance of the legal process of probate. A will would be admitted to probate, and it will take eight months or more for the estate to be probated. No inheritances are distributed during this interim, and probate expenses consume a portion of the estate.
Another benefit is the ability to include spendthrift protections if you are leaving an inheritance to someone that is not good with money. You would act as the trustee while you are living, and you can name a disability trustee to assume the role in the event of your incapacity.
A joint living trust can be the ideal estate planning solution for some married couples that own a lot of property together. When you weigh all factors objectively, a living trust is far more effective than a will unless your intentions are very simple and straightforward.
Need Help Now?
If you already know that you should work with a Burbank, CA estate planning lawyer to put a plan in place, our doors are open. You can send us a message to request a consultation appointment, and we can be reached by phone at 818-937-2335.
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