Understanding Revocable Trusts: Flexibility and Estate Planning

A revocable trust, also known as a living trust, is a flexible estate planning tool that allows the person who creates it, typically called the settlor or grantor, to retain control over the assets. A key feature of a revocable trust is that the settlor has the right to change or even cancel (revoke) the trust during their lifetime (Babbitt v. Superior Court, 246 Cal.App.4th 1135 (2016)).

Settlor's Control and Ownership:

Because the settlor maintains this control, property that is transferred into or held within a revocable inter vivos (created during the settlor's lifetime) trust is legally considered the property of the settlor (Steinhart v. County of Los Angeles, 47 Cal.4th 1298 (2010)). This means the settlor can continue to manage and use the assets as they see fit.

Probate Avoidance and Creditor Access:

One significant advantage of a revocable inter vivos trust is that it can help avoid probate, the often lengthy and costly legal process of validating a will after someone passes away. However, it's important to note that while a revocable trust helps with probate avoidance, it does not protect assets from the settlor's creditors (JPMorgan Chase Bank, N.A. v. Ward, 33 Cal.App.5th 678 (2019)). This is because, during the settlor's lifetime, they often act as the trustee and the primary beneficiary, maintaining control and access to the trust property. Therefore, creditors can generally reach the trust assets to satisfy the settlor's debts.

In summary, a revocable trust offers the settlor flexibility and the benefit of probate avoidance, but the assets within the trust remain accessible to the settlor's creditors during their lifetime due to their retained control.

Key Differences Between Revocable and Irrevocable Trusts:

The key differences between the two types of trusts are the settlor's ability to modify or revoke the trust and the nature of the beneficiaries' interests. In an irrevocable trust, the settlor cannot make changes, and the beneficiaries have a vested interest. In a revocable trust, the settlor retains the power to make changes, and the beneficiaries' interests are contingent until the trust becomes irrevocable.