Trusts for Wealth Management

Question: I keep hearing about different kinds of trusts, especially revocable and irrevocable trusts. What are they and why are they important?

Answer: When properly designed and carefully used, trusts can be powerful wealth management tools. They can turn potential tax liabilities into charitable gifts and lifetime income streams. They can help protect assets from litigation and spurious legal claims. They can help establish and extend family wealth. They can help settle estates and avoid probate. And they can help deepen family ties and perpetuate family legacies.

One common misperception is that trusts are only for the wealthy. Not true. Trusts come in all different shapes and sizes and can be used in a variety of situations. The kind of trust you need depends on what you are trying to accomplish. This decision is best made in consultation with your wealth manager and your attorney. Your attorney will also be able to draft the necessary documents to make sure your trust is on solid legal footing.

The basic purpose of a trust is to manage and protect assets according to the desires of the person who creates the trust, known as the grantor. A trust is usually created to benefit specific individuals referred to as the beneficiaries. The trustee of the trust is responsible to see that the terms of the trust are honored.

As you mentioned, some trusts are revocable and others are irrevocable. With revocable trusts, the grantor is usually the trustee, though another person is often named as successor trustee in the event the grantor/trustee dies or becomes incapacitated. A revocable trust allows the grantor to change the terms of the trust, to change or remove beneficiaries or to withdraw assets. If a grantor does not retain these powers, the trust is said to be irrevocable.

One of the most common uses of a revocable trust is to avoid probate after the grantor’s death. Probate is the process used by the courts to make sure the assets in an estate go where the deceased intended them to go. Probate can be time consuming, expensive and opens your estate to public scrutiny. You can avoid this with a well-designed and properly funded revocable living trust. A revocable living trust can also help a grantor avoid court-appointed conservatorship should the grantor become incapacitated during her lifetime.

Since most people like to control their assets, they usually prefer revocable trusts. However, sometimes people want to do things that can only be accomplished with irrevocable trusts.

With irrevocable trusts, the grantor turns control of the trust over to the trustee and the grantor and the trust are treated as two legally distinct entities. This separation allows an irrevocable trust to outlive the grantor, to be taxed differently than the grantor, and to own property apart from the grantor.

Using a type of irrevocable trust known as a special needs trust, parents of a special needs child can provide for the child’s care after the parents’ death without compromising the child’s eligibility for social security or Medicaid benefits. Other examples of irrevocable trusts include charitable remainder trusts, irrevocable life insurance trusts, asset protection trusts, generation skipping trusts, and qualified personal residence trusts. By carefully using these tools, individuals and families can better manage their wealth now and for generations to come.


Steven C. MerrellMBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a wealth management firm in Monterey.   He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA93940 or email them to