California residents who are looking into estate planning may be interested in one type of trust that can help to avoid probate while giving the person control of their money during their lifetime. This trust, however, is not without its drawbacks.
Trusts are estate planning vehicles that move assets into the care of another person or entity for the benefit of the trust owner's heirs. A trust can be created by a will at the time of death. When the trust is created while the person is still alive, it is known as a living trust.
There are two types of living trusts: revocable and irrevocable. The revocable trust allows the person who owns the assets to make changes to the trust property during their lifetime, allowing them access to those assets while still alive. The major drawback of this is that creditors can also access the assets for debt collection purposes. So, while this type of trust allows the person to avoid probate, their debts may still be satisfied by the trust assets.
An irrevocable trust is one that cannot be accessed by either the owner of the assets or their creditors. This allows the trust funds to be protected for the benefit of the trust beneficiaries. However, the loss of control should be weighed against this protection when a person decides what type of trust is appropriate for their estate planning needs.
Living trusts are a valuable part of many comprehensive estate plans. An attorney with experience in estate planning may be helpful in deciding whether an irrevocable or revocable trust is right for the situation. Additionally, an attorney may be able to counsel the person on estate tax, wills and other estate planning issues.
Source: NBR, "A matter of trusts: Benefactors, heirs and their advisors", Maureen Nevin, August 04, 2014