Irrevocable trusts can help to provide long-term asset management. Although irrevocable trusts are not suitable for everyone, they can be an important estate planning tool for some.
While irrevocable trusts are by title inflexible, some states, including California, allow for modifications to an irrevocable trust in some situations.
Irrevocable trusts can be helpful for individuals with taxable estates, those who do not want additional personal income for tax reasons, and they also help to avoid probate.
Irrevocable trusts can also provide creditor protection since once your assets are transferred to an irrevocable trust, they are no longer considered yours. The irrevocable trust must include the proper language however. The ownership interest left to the beneficiary of the trust must be contingent on some future event or subject to the sole discretion of the trustee. Also, a “spendthrift” provision can be used which prevents creditors from making a claim against the beneficiary’s interest, as long as the assets remain in the trust.
But be warned, in March 2017, the California Supreme Court held that a bankruptcy trustee could seize the property of an irrevocable trust, notwithstanding a spendthrift provision, once “principal” becomes due and payable to the beneficiary/debtor. Carmack v. Reynolds, 2017 Cal. LEXIS 2429 (2017).
If you have concerns about creditor protection, it is important to speak with an estate planning attorney who is knowledgeable of the laws, including case law.
One type of irrevocable trust is a life insurance trust which can provide creditor protection and estate tax benefits. There are also other irrevocable trusts, split-interest trusts, like charitable remainder trusts – this type of trust pays an annuity to a beneficiary for a term of years and the remainder goes to a charity. This is only one type of split-interest trusts, and an estate planning attorney can discuss all your options with you.
Irrevocable trusts can be modified in California under certain circumstances. An estate planning attorney can discuss your options with you if you believe you may need to modify an already existing irrevocable trust.
Mendes Weed, LLP is here to help you if you have any questions. (925) 390-3222.
The tips and materials provided on this page are for informational purposes only, offered as public service. No information on this website should be considered legal advice or used as a substitute for legal advice. For legal advice, you should contact an attorney directly.
Mendes Weed, LLP offices are located in Walnut Creek and our skilled attorneys provide family, tax, business, and trust law assistance for clients. For your convenience, we also have attorneys' offices in San Francisco and Sacramento by appointment only.
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