Do I need a trust? This is often one of the first questions asked by our estate planning clients. It’s a great question! But what kind of trust are they talking about? There are as many types of trusts as there are apple varieties in Wenatchee. Most commonly, however, clients are asking about revocable living trusts (also commonly called family trusts or marital trusts). So, what is a revocable living trust? Before diving into the particulars, let’s first get clear on the general definition of a trust. According to the 2019 American Heritage Dictionary, a trust is “a legal relationship in which one party holds a title to property while another party has the entitlement to the beneficial use of the property.” The definition’s reference to “property” can mean real property (land), tangible personal property (cars, jewelry, clothes, etc…) and liquid assets (bank accounts, mutual funds, etc…). The person or people who create the trust are variously referred to as “Trustors,” “Grantors,” or “Settlors.” The party “holding title” is the Trustee and the person benefiting from the Trust is the “beneficiary.” In some cases, all of these roles are simultaneously held by the same person who just wears different hats (fedora, sombrero or cowboy—ok, not really) depending on their role.
So now that we’ve got the trust basics under control, what exactly is a revocable living trust? First, as the name indicates, a revocable living trust can be revoked or amended by the Trustors subject only to restrictions set out in the trust. Second, the revocable living trust is structured so that the Trustors have access to the assets throughout their lives. Third, once the Trustor(s) die, the trust either becomes irrevocable (it can no longer be amended) or the trust assets are distributed and the trust terminated. Creating a revocable living trust is complicated and often involves a fair bit of time and expense. So why would anyone want to do this?
There are three common reasons for creating a revocable living trust. In no particular order of commonality or importance:
- Probate avoidance. Probate is the process through which a court authenticates a will, gives authority to a personal representative (executor) and oversees the distribution of assets. Probate laws differ significantly from state to state and although Washington probate is fairly streamlined and not terribly expensive, the process in some other states (I’m looking at you California) is just the opposite. If all of your assets are in a revocable living trust, you can avoid probate. The courts don’t need to get involved and distribution of the assets can be handled privately. Because Washington probate is relatively straightforward, probate avoidance isn’t terribly important. However, if you have property in both Washington and another state, you may need to open a probate in both states, in which case creating a trust might be a something to consider.
- Mixed families. Modern life calls for modern estate planning. In second (or third, or fourth) marriages, each partner often brings their own assets to the marriage and may have children from previous relationships. Each partner often wants to ensure that their new spouse is taken care of during their lifetime, but also wants to make sure that their own kids get their fair share of the assets. One way to accomplish this goal is with a revocable living trust.
- Tax Planning. Sometimes revocable living trusts are created to avoid or minimize estate tax. In Washington, unless the estate exceeds approximately $2.1 million, there isn’t any estate tax. Additionally, the federal estate tax doesn’t apply unless your estate is over $11.4 million ($22.8 million for married couples). With these very high estate tax exemptions, not many people need to use revocable living trusts for tax planning. This wasn’t always the case, however, as estate tax exemptions, both in Washington and federally, used to be much lower.
Although these are the most common reasons for creating a revocable living trust, there are many other less common situations where revocable living trusts might be an estate planning option. If you really want to know whether you should trust yourself, first look in the mirror and then call our office to schedule an appointment.
As always, thanks for reading!
The Team at the Elder Law Offices of Meyers, Neubeck & Hulford, P.S.
Barry M. Meyers
David M. Neubeck
Sara LC Hulford
Elder Law Offices of
Barry M. Meyers, P.S.
DISCLAIMER: The content of this newsletter is: for information purposes only, subject to change by government agencies, should not be relied upon as current, and, does not constitute legal advice. Reading this newsletter does not establish an attorney-client relationship.