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What Is The Difference Between Living Trusts And Irrevocable Trusts?

trusts

If you have researched estate planning, you may have heard about living trusts and irrevocable trusts. What is the difference, and which is better? Learn all about living and irrevocable trusts in this article, then our San Fernando Valley living trust attorneys can answer any estate planning and trust questions you have.

What Is A Trust?

A common estate planning tool is a trust, which transfers assets from your name into that of a legal entity. The purpose of the trust is generally to hold, safeguard, and distribute those transferred assets to your beneficiaries according to your wishes and goals.

While many think that trusts are only needed by the wealthy, millions of families could benefit by having a trust as part of their estate plan. The key is to understand which trust is better for your situation. There are two kinds of trust: revocable (living) and irrevocable. As the names suggest, the trustor can change a revocable or living trust. But in an irrevocable trust, the trustor cannot make changes without the beneficiaries’ permission.

Living Trust Overview

In a living trust, assets are put into a written trust for your benefit while you are still alive. Then, the assets are transferred to the beneficiaries that you designate in your trust when you die. This type of trust may also be called a revocable or family trust. Revocable means the trust’s terms can be changed while the trustor is alive. A living trust can be changed or revoked anytime during the trustor’s lifetime.

Living trusts are often part of comprehensive estate plans and are popular for avoiding probate.

Irrevocable Trust Overview

An irrevocable trust is one where the trustor cannot make a change to the assets in the trust unless the beneficiaries consent. There are two primary reasons that some individuals establish an irrevocable trust:

  • Saving on taxes: when a trustor makes an irrevocable trust, assets are not in their name. This means they are not part of the taxable estate. You may need to complete a gift tax return depending on the transfer value.
  • Protecting assets: When your assets are placed into the irrevocable trust, you no longer have a connection to them because they are not in your name. Also, as the trustor, you do not control the assets anymore. The trustee is in control, so if you get sued, a creditor cannot make the trustor take assets out to pay an outstanding debt.

Why Would You Want A Living Trust?

There are several unique advantages to living trusts that make them popular. They are:

  • Avoid probate: If the trust is properly funded, meaning the assets are in the trust’s name, the estate will not go to probate.
  • Customized estate planning: The living trust lets you establish a clear path for distributing assets how you wish.
  • More privacy: Taking assets out of your name and putting them into a trust usually gives you more privacy. Remember, probate records are open to the public.
  • Changeable: You can change or revoke a living trust when you like, giving you more control.
  • Incapacitation: If you become incapacitated, you can name a person to step in when you are mentally or physically unable to manage your affairs.

On the other hand, a living trust does not protect your assets because the trustor still controls the assets. So, they could be taken out to pay a creditor. Also, the tax benefits are less advantageous than those with an irrevocable trust.

Why Would You Want An Irrevocable Trust?

There also are things to like about irrevocable trusts. They include:

  • Avoid probate: If the irrevocable trust assets are in the trust’s name, they can stay out of probate.
  • Estate planning flexibility: Assets can be distributed as you want.
  • Reduce taxes: This trust is a robust tool to minimize taxes.
  • Privacy: An irrevocable trust ensures privacy. Probate is in the public record.

However, without the beneficiaries’ consent, you cannot change an irrevocable trust once it is set up. In some cases, you may need to file a motion in court. You also cannot access the assets you put in the irrevocable trust, which could cause problems getting loans or refinancing.

Next, you are not the trustee, so you have little control once the assets are in the trust. Lastly, irrevocable trusts are expensive to establish and require annual upkeep costs for tax returns and bookkeeping.

Which Trust Is Best?

The best way to know which trust is best for your situation is to review the matter with your estate planning attorney. Working with your attorney, who understands your trust options and your financial and tax situation, will help you achieve your estate planning goals.

Also, it should be noted that irrevocable trusts are often the choice of high-net-worth individuals with estate tax concerns, and those with possible creditor issues down the road. However, for many people, the tax advantages of an irrevocable trust are not as crucial because of the size of the estate. A living trust may be sufficient to address many estate planning needs for many people. You should always review your estate planning and financial goals with a licensed attorney to fully understand your trust options.

Contact Our San Fernando Valley Living Trust Attorneys

Our San Fernando Valley living trust attorneys at Ourfalian & Ourfalian have years of experience with estate planning, drafting wills, and setting up trusts. They can help with your estate planning and setting up a living trust, so call (818) 550-7777.

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How Often Your Will Should Be Reviewed And Updated?

last will and testament

If you wrote your will recently or a few years ago, it is understandable to forget about it. Experts recommend revisiting your will at least every three or five years. Some may need to review it more often. After finding out how often you should update or review your will, talk to the Encino living trust attorneys at Ourfalian & Ourfalian.

When Should You Review Your Will?

It is essential to review and update your will every few years. This is because everyone experiences life changes once in a while that can affect your estate plan. Here are some life changes you should consider updating your will for when they occur. At the least, have your estate planning attorney review the will at least every three years.

Starting A New Relationship

Marriage may cancel any will made by either spouse before the marriage was formalized. An exception is if the will was written in contemplation of marriage.

Many people who are newly married and already have a will may want to name the new partner as an estate beneficiary. So, you should update your will and estate plan after marriage or if you participate in a new common-law partnership.

It is commonly misunderstood that your assets will go to your spouse automatically if you pass away. However, if you fail to document your updated wishes in your will, the state of California will dictate how the assets are distributed. If they are not named in your will, your partner could be excluded from receiving their inheritance. Most people do not want the state government to decide who gets what of their assets. So, be sure to regularly check and update your will.

Raising A Family

Reviewing and updating the will is also vital when you have a child. It should be a top issue to name a guardian in your will to take care of minor children if something happens to you. While rare, you and your partner could pass away simultaneously, so having a guardian named is essential.

Beneficiary Or Dependent Is Disabled

Parents with a child with a disability may need to make the necessary updates to their will to reflect the current interests of that individual. It may be advisable to review the will with your estate planning lawyer to see how it could affect your child’s eligibility for government programs. Instead of leaving your assets to a child with a disability, it may be preferable to set up a living trust (see further below).

Death Of A Spouse

If your spouse or partner passes away, it is usually necessary to update your will. For example, legal documents will need updating if your deceased partner was named an executor or beneficiary.

Retirement

Your goals in your estate plan may change if you stop working. This gives you another chance to go over your will and estate plan. For example, could you lower your probate and tax costs when you pass away? Are all your beneficiaries up to date and accurate?

Change To Your Financial Situation

Many couples find that mid-life is an ideal time to review their will. You may be entering or exiting your prime earning years, so your will should reflect your current situation. Think about how your family will go on if you suddenly pass away or become incapacitated.

Also, if your financial situation, your will should be changed. For example, if your net worth is much higher than it was, there could be better tax planning strategies you should consider. Or, if you have sold some of your real estate assets, your will may need to be changed.

You May Want To Consider A Living Will

Another reason to review your will is to change how your beneficiaries receive their inheritance. If you have financially irresponsible beneficiaries, consider setting up a living trust. The trust serves as the beneficiary of the asset. It holds the assets for your children, and legal documents create the legal entity.

If you create a living trust, the named assets go to the trust and not directly to your heirs. They only receive money according to how the trust gives it to them. Setting up a trust also may be wise if you have a child with a mental disability. This ensures your child will receive their inheritance, but there is a legal process in place to oversee how the money is distributed.

Can You Make Handwritten Changes To A Will?

Yes, but you should implement all will changes correctly, or they could be invalid. Wills that have been changed by hand are more likely to be contested, which raises legal costs. This is because it may be hard for your lawyer and beneficiaries to know when the will was updated. Also, who made the change and when may need to be clarified. If not, the beneficiary could argue you made a handwritten change when you were not of sound mind

If someone challenges a handwritten change to the will, the executor must show that you made the changes intentionally. If updates to your will are not signed and formalized appropriately, it could cause issues and conflicts between heirs. Fortunately, many simple will changes are relatively inexpensive to have done.

Contact Encino Living Trust Attorneys

It is essential to set up a will so there is a clear plan for how your assets should be distributed at the end of life. However, your will should be considered a living document and should be reviewed regularly. Encino living trust attorneys Ourfalian & Ourfalian can assist you with your will and ensure it reflects your current wishes.

Our attorneys handle estate and will cases in Encino, Alhambra, Arcadia, Burbank, Glendale, El Monte, Granada Hills, Los Angeles, Monterey Park, North Hollywood, Pasadena, Van Nuys, and other communities in Southern California and the San Fernando Valley. Please contact our Encino estate planning attorneys for a complimentary consultation about your will at (818) 550-7777.