Understanding Irrevocable Trusts in California Estate Planning

When creating an estate plan in California, one of the most powerful tools available is the irrevocable trust. Although not as commonly used as revocable living trusts, irrevocable trusts serve distinct purposes that can offer long-term benefits in the right circumstances. These trusts are especially important for individuals who are focused on protecting assets, minimizing taxes, or planning for long-term care and government benefit eligibility.

This article will explain what an irrevocable trust is, how it fits into a California estate plan, and why it may be the right tool for specific planning goals.

What Is an Irrevocable Trust?

An irrevocable trust is a legal arrangement where the person creating the trust—called the grantor—transfers ownership of assets into the trust and, in doing so, gives up the ability to unilaterally revoke or modify it. Once the trust is established and funded, the grantor typically cannot retrieve the assets or change the trust terms without court approval or the consent of all beneficiaries.

The trust is managed by a trustee, who is legally obligated to manage the assets in accordance with the trust terms and for the benefit of the beneficiaries. Because the grantor no longer owns the assets, those assets are no longer part of the grantor’s taxable estate and are often beyond the reach of creditors or public benefits calculations.

This is the main distinction between irrevocable and revocable trusts. Revocable trusts, while excellent for avoiding probate and managing assets during incapacity, do not provide the same level of protection or tax planning. With revocable trusts, the assets remain under the grantor’s control and are still subject to estate taxes, lawsuits, and public benefit eligibility rules. Irrevocable trusts, in contrast, allow for stronger asset protection and strategic estate planning.

When Irrevocable Trusts Make Sense in California

In California, irrevocable trusts can be an excellent fit for clients with particular needs—such as protecting wealth, minimizing federal estate taxes, preserving Medi-Cal eligibility, or caring for a loved one with special needs.

California does not impose its own estate tax, but high-net-worth residents may still be concerned about the federal estate tax, which applies to estates exceeding $13.99 million per individual (as of 2025). By moving appreciating assets into an irrevocable trust during their lifetime, individuals can ensure that those assets—and any growth in value—are removed from their taxable estate. For example, someone who transfers investment properties, closely held business interests, or life insurance policies into an irrevocable trust can potentially pass on significantly more to heirs tax-free than if those assets were left in their name.

Irrevocable trusts also play a vital role in Medi-Cal planning. Medi-Cal is California’s Medicaid program and can cover the high costs of long-term care for eligible individuals. However, Medi-Cal has strict income and asset limits. Certain irrevocable trusts—when structured correctly and created well in advance—can remove assets from being counted under Medi-Cal eligibility rules. This allows individuals to qualify for coverage while preserving their home or other key assets for their heirs. It's worth noting that Medi-Cal has a 30-month look-back period, meaning transfers made shortly before applying for benefits can be scrutinized or penalized, which is why advance planning is essential.

In addition to tax and benefit planning, irrevocable trusts are also used in special needs planning. Parents of children with disabilities often establish irrevocable special needs trusts to provide lifelong support for their children without disqualifying them from government benefits. These trusts can supplement, but not replace, the support offered by programs like Supplemental Security Income (SSI) or Medi-Cal.

Finally, some business owners in California use irrevocable trusts to transfer business interests to the next generation while locking in current valuations and removing future appreciation from their estate. This can be particularly useful in succession planning, helping to ensure a smooth transition while avoiding unnecessary taxes or delays.

Benefits of Irrevocable Trusts

One of the most significant benefits of irrevocable trusts is asset protection. Because the assets are no longer owned by the grantor, they are generally shielded from lawsuits, creditors, and certain financial liabilities. This protection can be appealing to professionals, business owners, and families who want to preserve wealth for future generations.

These trusts also provide privacy and efficiency. Assets placed in an irrevocable trust avoid probate, which can be a lengthy and public process in California. Instead, the trustee distributes the assets according to the trust terms, outside of court supervision. This ensures both privacy and speed in handling the estate after death.

Irrevocable trusts also allow for detailed control over how assets are used. A grantor can specify how and when beneficiaries receive funds—for instance, limiting access to assets until a certain age or restricting distributions to specific purposes like education or health care. This long-term oversight can help preserve wealth and prevent beneficiaries from mismanaging their inheritance.

In high-value estates, irrevocable trusts are a central tool for reducing or eliminating federal estate taxes. Strategies like irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs), and intentionally defective grantor trusts (IDGTs) allow for creative, lawful wealth transfer while minimizing exposure to the 40% federal estate tax.

Things to Consider Before Creating an Irrevocable Trust

While the benefits are substantial, irrevocable trusts are not appropriate for every estate plan. The primary drawback is loss of control. Once the trust is created and assets are transferred, you typically cannot change your mind. In most cases, you won’t be able to access the trust assets for your own benefit. This can make irrevocable trusts feel restrictive, especially for those who are unsure about their long-term needs.

There are also administrative considerations. A separate taxpayer identification number may be required for the trust. You may need to file annual trust tax returns. And if the trust earns income, that income could be taxed at higher trust tax rates unless the income is distributed to the beneficiaries.

Because irrevocable trusts are complex, careful drafting is essential. Working with an experienced estate planning attorney ensures the trust complies with California law and reflects your specific goals. A well-drafted irrevocable trust can include flexible provisions, such as the appointment of a trust protector—an independent third party with limited powers to amend the trust if future changes are needed. Even though the trust is irrevocable, these safeguards can provide some adaptability over time.

Is an Irrevocable Trust Right for You?

Irrevocable trusts are a sophisticated and effective way to protect assets, reduce taxes, qualify for benefits, and preserve your legacy. However, they are not one-size-fits-all solutions. The decision to use an irrevocable trust should be based on your financial picture, family dynamics, and long-term goals.

For California residents with significant assets, children with special needs, or concerns about long-term care costs, an irrevocable trust may be the key to a more secure and thoughtful estate plan.

At Devey Law, we help individuals and families throughout California evaluate whether an irrevocable trust fits into their estate plan and assist with the design and implementation of trusts tailored to their unique circumstances. If you're considering this powerful planning tool, contact us today to schedule a consultation.

Need help with Incapacity Planning, Estate Planning, Trust Administration, Probate, or Business Law? Devey Law is here for you. Call us at 805.720.3411 or email info@deveylaw.com to schedule a consultation.

This blog is for informational purposes only and does not constitute legal advice. Reading this blog does not create an attorney-client relationship between you and Devey Law, A Professional Law Corporation. Laws and regulations may change, and the information provided may not reflect the most current legal developments.