Is There a Disconnect Between Your Goals and Your Trust?

Dear Mr. Miller:

I’m opening a bank account in the name of my Trust.  The bank asked me whether the Trust is revocable or irrevocable.  I thought it was irrevocable but my neighbor took a quick look and said it was revocable.  Isn’t irrevocable better and how do you tell?

Completely in the Dark

Revocable vs Irrevocable–the Difference
Is Irrevocable better
What Does Revocable Accomplish
How to Determine if Trust is Revocable or Irrevocable
Call Us

Dear Completely:

Revocable vs Irrevocable–the Difference:  Don’t feel bad, this is a question we get constantly.  First, what’s the difference?  Revocable means the terms of the trust can be changed or it can be canceled.  Irrevocable means it can’t; although there are, amazingly, different levels of irrevocability.

Is Irrevocable better?  That depends on what the goal is.   Typically, we use irrevocable trusts for lawsuit protection, divorce protection, access to government benefits such as Medi-Cal, or tax advantages (usually income or death tax)  The disadvantage, of course, is that the irrevocable type is far less flexible and, to an extent, cannot be changed or canceled.  If one has no such goals, then  why would one want to give up that flexibility; so revocable is going to be the choice.

What Does Revocable Accomplish:  Revocable, as most people know, avoids probate and incompetency problems.  In other words, anything titled in the Trust, for the assets titled in the name of the Trust, will typically avoid probate when the creator (i.e. Trustor, Settlor) dies and will avoid court involvement if the creator loses mental competence.

How to Determine if Trust is Revocable or Irrevocable:  So how do you tell which type your Trust is.  The document should tell you.  Somewhere in the document there is going to be a paragraph about amendment and revocation.  Please do not rely on the title (i.e. name)  of the trust which might include the word “revocable” or “irrevocable” such as “The John E. Doe Irrevocable Trust.”  I have seen revocable trusts titled irrevocable and vice versa.  You must find the actual paragraph in the document.  Since I electronically scan all of my client’s documents, I can computer search the document for the word “revocable” or “revoke” to make the determination.   If you have the ability, I would suggest you do that, too, as I have found it a more reliable method than eyeballing.   If there is no such paragraph, California law states that the Trust is revocable.  Note that in many other states the reverse is true.

Call Us:  If you don’t know what your goal was (or is) in having this trust or you think it should be reviewed, give us a call at 760-436-8832 so we can help you figure out what you are trying to accomplish.