California Irrevocable Trusts
Last updated: August 2026
An irrevocable trust works by taking property out of your hands. You transfer assets in, you give up the ability to take them back, and in exchange those assets can sit outside your taxable estate and beyond the reach of your creditors. The exchange is the mechanism, not a technicality — and in California it is stricter than most people expect, because a trust you can still benefit from is a trust your creditors can still reach. Bay Legal, P.C. advises California clients on when an irrevocable structure is worth that trade and when it is not.
Definition: An irrevocable trust is a trust that the settlor generally cannot amend or revoke after creation, and whose assets the settlor no longer owns.
What does an irrevocable trust actually do?
It changes who owns the property. Once you transfer an asset into a properly structured irrevocable trust, it belongs to the trust, managed by a trustee for the benefit of the people you named. You cannot direct it, borrow from it, or take it back.
Two consequences follow, and both depend on that transfer being genuine:
- Estate tax. Assets you no longer own are generally not counted in your taxable estate, along with their future appreciation. For estates approaching the federal exemption, moving an appreciating asset out early is worth more than moving it later.
- Creditor exposure. Assets you no longer own are generally beyond the reach of claims against you — subject to the limits in the next section, which are the whole story in California.
The cost is control. Someone who cannot comfortably part with an asset should not put it in an irrevocable trust, and any structure that quietly preserves your access to it will not deliver the benefits you set it up for.
Does an irrevocable trust protect your assets from your creditors?
Only if you are genuinely not a beneficiary. This is the point on which California differs sharply from the states that advertise asset protection trusts. Under Probate Code section 15304, where the settlor is a beneficiary of a trust the settlor created, a spendthrift restraint on the settlor’s own interest is invalid against the settlor’s creditors. Where the trustee has discretion to distribute to the settlor, creditors may reach the maximum the trustee could pay out.
California has not enacted a domestic asset protection trust statute. Nevada, Delaware, South Dakota, and others permit a settlor to be a discretionary beneficiary of their own protected trust; California does not, and a California resident with California assets cannot reliably obtain that result by using another state’s law.
Timing matters as much as structure. A transfer made when a claim is threatened, pending, or reasonably foreseeable may be set aside as a voidable transfer under Civil Code section 3439.04 and following. Asset protection is planning done in advance, when there is nothing in particular to protect against. Anyone approaching it because a claim has already surfaced is generally too late, and attempting it then can make the position worse.
What works reliably is protecting other people. Spendthrift provisions under Probate Code section 15300 and following protect a beneficiary’s interest from that beneficiary’s creditors, and they are enforceable in California precisely because the beneficiary did not create the trust. Protecting a child from their own creditors, a difficult marriage, or their own spending is achievable. Protecting yourself from yours, while keeping the benefit, is not.
Which irrevocable structures come up most often?
| Structure | What it is for | Key consideration |
|---|---|---|
| Irrevocable life insurance trust | Keeping policy proceeds out of the taxable estate | The trust must own the policy; transfers of an existing policy carry a look-back |
| Special needs trust | Providing for a beneficiary with disabilities without disqualifying them from SSI or Medi-Cal | First-party and third-party forms differ substantially, including on payback |
| Dynasty trust | Multi-generational transfer with generation-skipping tax planning | Long duration; trustee succession needs real thought |
| Grantor retained and gifting trusts | Moving appreciating assets and future growth out of the estate | Valuation and gift reporting; suited to estates near the federal exemption |
A first-party special needs trust funded with the beneficiary’s own assets, typically a personal injury recovery, is governed in California by Probate Code section 3604 and generally requires a Medi-Cal payback provision. A third-party trust funded by parents or grandparents does not. Conflating the two is a common and expensive error.
Can an irrevocable trust be changed?
More often than the name suggests, which is why the live page’s “cannot be modified or revoked after creation” overstates the position. California provides several routes. Under Probate Code section 15403, all beneficiaries may petition to modify or terminate a trust, and the court may allow it unless continuance is necessary to carry out a material purpose. Under section 15409, a court may modify or terminate where circumstances unknown or unanticipated by the settlor would otherwise defeat or substantially impair the trust’s purposes.
Decanting, non-judicial settlement agreements, and trust protector provisions can also provide flexibility, and drafting for foreseeable change at the outset is far cheaper than petitioning later. None of this makes an irrevocable trust revocable — the settlor cannot simply undo it — but it does mean an inflexible outcome is usually a drafting failure rather than an inherent feature.
How is an irrevocable trust taxed?
It depends on whether it is a grantor trust for income tax purposes. A grantor trust’s income is reported on the settlor’s personal return even though the assets are outside the estate, which can be an advantage — the settlor paying the tax is effectively an additional untaxed gift to the beneficiaries. A non-grantor trust obtains its own tax identification number, files its own return, and reaches the top bracket at a very low income threshold.
For estate tax, the question is whether the transfer genuinely removed the asset. California imposes no state estate tax, and the federal exemption is high enough that most estates owe nothing; the Internal Revenue Service publishes the current figure. Irrevocable planning becomes relevant as an estate approaches that threshold, or where an asset is expected to appreciate substantially.
[STAFF: this page deliberately states no exemption figure, consistent with the pillar. The live pillar’s claim that the exemption fell in 2026 is incorrect. Confirm the current amount and decide firm-wide whether to publish figures.]
One trade-off worth naming: assets in an irrevocable trust generally do not receive a step-up in basis at death, which assets in a revocable trust do. For a low-basis asset held by an estate below the federal exemption, the capital gains cost of moving it out can exceed the estate tax saved. That calculation should be run before the transfer, with the client’s tax advisor.
Who advises on irrevocable trusts at Bay Legal?
Sivendra Ganesh Maraj leads estate planning and probate. Rachael Berg handles trust and estate matters and trust administration disputes. Irrevocable planning is done alongside the client’s tax advisor rather than instead of one, because the estate tax, income tax, and basis questions have to be resolved together before any transfer is made.
Bay Legal, P.C. serves clients statewide from offices in Palo Alto and Los Angeles, including families across San Francisco and the wider Bay Area.
Frequently Asked Questions
Will an irrevocable trust protect my assets from my creditors?
Only if you are genuinely not a beneficiary. Under Probate Code section 15304, where the settlor is a beneficiary of their own trust, a spendthrift restraint is invalid against the settlor’s creditors, and creditors may reach whatever the trustee could distribute to the settlor. California has no domestic asset protection trust statute. Real protection requires actually giving the property away.
Can I set up an asset protection trust if I am already facing a claim?
It is generally too late and can make matters worse. A transfer made when a claim is pending, threatened, or reasonably foreseeable may be set aside as a voidable transfer under Civil Code section 3439.04 and following. Asset protection planning works when done well in advance of any specific exposure.
Can an irrevocable trust be modified?
More often than the name suggests. Probate Code section 15403 allows all beneficiaries to petition for modification or termination, and section 15409 allows a court to modify where unanticipated circumstances would defeat the trust’s purposes. Decanting, non-judicial settlement agreements, and trust protector provisions can also help. The settlor still cannot simply revoke it.
Does an irrevocable trust need its own tax return?
Usually, unless it is structured as a grantor trust. A non-grantor trust obtains its own tax identification number, files its own return, and reaches the top bracket at a very low income threshold. A grantor trust’s income is reported on the settlor’s personal return even though the assets sit outside the estate.
What is the difference between a first-party and third-party special needs trust?
A first-party trust is funded with the beneficiary’s own assets, often a personal injury recovery, is governed in California by Probate Code section 3604, and generally requires a Medi-Cal payback provision on the beneficiary’s death. A third-party trust is funded by parents or others and carries no payback. Conflating them is an expensive error.
Do assets in an irrevocable trust get a step-up in basis?
Generally not, which is a real cost. Assets in a revocable trust receive a step-up at death, eliminating built-in capital gain. For a low-basis asset in an estate below the federal exemption, the capital gains cost of moving it out can exceed the estate tax saved. Run the calculation before transferring.
Related Questions
Can I be the trustee of my own irrevocable trust?
Usually not, if the point is estate tax exclusion or creditor protection. Retaining control tends to undo the benefit. An independent trustee is the norm, and who that is deserves as much thought as the trust terms.
What is decanting?
Distributing assets from one irrevocable trust into a new trust with different terms, where the trustee has sufficient discretion to do so. It is one route to flexibility in a document that cannot be amended directly.
Does a Nevada or Delaware trust work for a California resident?
Not reliably. A California resident with California assets and California creditors should assume California law will be applied to the question. Structures marketed on another state’s asset protection statute deserve particular scepticism here.
What is a trust protector?
A person given limited powers in the trust document — often to replace the trustee, change situs, or amend administrative provisions — providing flexibility without giving the settlor control that would defeat the trust’s purpose.
Talk to a California estate planning attorney
Irrevocable planning is worth doing when the trade is worth making, and the first useful conversation is usually about whether it is. To discuss an irrevocable trust with a Bay Legal attorney, call the office nearest you or email intake.
Attorney Sivendra Maraj has been extremely helpful, and his explanations are clear and easy to follow. He’s helped me navigate major life changes and has addressed my concerns so far.
— Ivy R., Google review, September 2025. Attorney: Sivendra Ganesh Maraj.
This review reflects one client’s experience. Results depend on the facts and law of each individual case and do not guarantee or predict a similar outcome in your matter.
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This page is general information about California law and does not constitute legal advice or create an attorney-client relationship. Bay Legal, P.C. does not provide tax advice. For advice on your specific situation, contact a licensed California attorney and a qualified tax professional.