Choosing between a revocable living trust and an irrevocable trust affects control, taxes, creditors, and probate. This article explains what each trust does under California law so you can make a clear, informed choice for your family in Santa Clarita, CA. However, many people confuse probate avoidance with tax savings or asset protection, which can lead to costly mistakes.
Why People Struggle
- Probate vs. taxes: A revocable living trust avoids probate for assets titled in the trust, but it does not by itself reduce income or estate taxes (California Courts; IRS) (California Courts; IRS).
- Creditor exposure: Assets in a revocable trust remain reachable by the settlor’s creditors during life (Cal. Prob. Code §18200) (Cal. Prob. Code §18200).
- Funding gaps: Only property actually titled in the trust avoids probate; assets left outside the trust may still require a court process (California Courts) (California Courts).
- Revocability rules: In California, a trust is revocable unless the document says it is irrevocable (Cal. Prob. Code §15400) (Cal. Prob. Code §15400).
- Medi-Cal recovery confusion: Since 2017, California limits Medi-Cal estate recovery mainly to assets in the probate estate; non-probate transfers are generally not recovered (DHCS) (DHCS).
In this article, you’ll learn how to avoid these pitfalls and make informed choices.
Revocable Living Trusts: Flexibility and Probate Avoidance
Why it matters: A revocable living trust lets you keep control and change terms during your lifetime. Property titled to the trust passes to beneficiaries without a full probate, which can save time and keep details private (California Courts) (California Courts).
What to do: Work with counsel to create the trust and retitle assets into the trust (for example, deed real estate to the trustee and update financial accounts). Only assets actually held by the trust avoid probate (California Courts) (California Courts).
Tax treatment: Most revocable trusts are “grantor trusts.” For income tax purposes, the IRS treats the grantor as the owner, so income is reported on the grantor’s personal return (IRS Instructions for Form 1041; IRS guidance on grantor trusts) (IRS Instructions for Form 1041; IRS guidance on grantor trusts).
Creditor access: Because you can revoke the trust, California law allows your creditors to reach trust property during your life (Cal. Prob. Code §18200) (Cal. Prob. Code §18200).
For help drafting or updating your will and living trust, speak with a Santa Clarita wills and trusts attorney.
Irrevocable Trusts: Control Traded for Protection and Tax Separation
Why it matters: An irrevocable trust generally can’t be changed once funded. Because the grantor gives up control, these trusts are often treated as separate taxpayers and may offer stronger protection from personal creditors than revocable trusts (subject to the trust’s terms and fraudulent transfer laws). An irrevocable trust usually files its own return (Form 1041) (IRS) (IRS).
What to do: Use an irrevocable trust for targeted goals—such as special-needs planning or long-term asset protection strategies—only after you understand that transfers are permanent and can have tax and eligibility effects. Get legal and tax advice before funding (IRS; California Courts) (IRS; California Courts).
Common Mistake: Assuming a Revocable Trust Shields Assets or Cuts Taxes
The issue: Many Californians think a revocable trust provides asset protection or tax savings by itself. It does not. During life, creditors can reach assets in a revocable trust (Cal. Prob. Code §18200), and the IRS generally ignores the trust for income tax purposes (grantor trust rules) (Cal. Prob. Code §18200, IRS).
The fix: Match the tool to the goal. Choose a revocable trust to manage property, keep flexibility, and avoid probate on properly titled assets (California Courts). Consider an irrevocable trust only when you are prepared to give up control and accept separate tax filing (IRS) (California Courts, IRS).
What You Can Expect if You Choose Correctly
Revocable trust outcome: When funded and maintained, your heirs can transfer trust property outside full probate, which can shorten timelines and reduce court oversight (California Courts) (California Courts).
If you’re already managing a decedent’s estate or a funded trust, speak with a Santa Clarita probate and trust administration attorney.
Irrevocable trust outcome: Properly structured, an irrevocable trust separates assets for tax reporting and may provide stronger protection from your personal creditors than a revocable trust, though results depend on timing, terms, and compliance with law (IRS; Cal. law) (IRS; Cal. law).
Medi-Cal note: For deaths on or after January 1, 2017, California generally recovers only from probate estates, not from most non-probate transfers like properly funded trusts (DHCS). Planning still matters to address exceptions and documentation (DHCS).
FAQs
Does a revocable trust avoid probate in California?
Yes—for assets titled in the trust. Property outside the trust may still need a court process (California Courts) (California Courts, California Courts).
Can creditors reach assets in my revocable trust?
Yes. During your lifetime, assets in a revocable trust are subject to your creditors to the extent of your power to revoke (Cal. Prob. Code §18200) (Cal. Prob. Code §18200).
How are revocable and irrevocable trusts taxed?
Revocable trusts are generally taxed to the grantor (grantor trust rules). Irrevocable trusts are usually separate taxpayers that file Form 1041 (IRS) (IRS, IRS).
Will a trust protect my home from Medi-Cal estate recovery?
California limits recovery largely to probate estates for deaths on or after January 1, 2017. Proper non-probate transfers (including funded trusts) are generally not recovered, but details matter (DHCS) (DHCS).
If you’re administering an estate or serving as a trustee, talk with a Santa Clarita probate and trust administration attorney.
Next Steps in Santa Clarita
If you own a home or other significant assets in Santa Clarita, CA, talk with a lawyer about which trust fits your goals, and make a plan to fund it correctly. For general background, the California Courts Self-Help site is a reliable starting point (California Courts Self-Help).
To get tailored advice and a comprehensive plan, speak with a Santa Clarita estate planning attorney.
Contact
For help with Revocable vs. Irrevocable Trusts in CA in Santa Clarita, CA, contact Law Offices of Andrew Cohen at (661) 481-0100.
