Estate Plan Note is a composite account of many cases we have worked on over the years. The names and events have been changed to avoid disclosing confidential client information.
We have all seen ads or heard from friends and TV personalities: “if you don’t have a living trust your estate may be consumed by probate costs and taxes.” Surprise, the truth is different than the advertising. For clients with modest estates, it can be more expensive to dispose of their property through a living trust than through a Will because it adds an additional document to their plan. Also, many vendors of living trusts charge high fees, leave their clients with a complicated set of documents and little guidance as to how to use them, and then fail to tell the client that the trust must be fully funded during life to avoid probate. Washington has recently passed legislation to try to police these so called “trust mills.” That being said, living trusts can be wonderful estate planning tools when used correctly and we frequently use them for our clients.
A trust is simply a legal entity that can hold title to property and is managed by someone called a trustee. A living trust is a marketing name for a revocable trust. If you transfer all your property to your trust during your life, it will not be necessary to probate your estate. Also, a trust is private and does not become a public document at your death as does your Will, it is a little easier to amend a trust than a Will, and a living trust can be used to manage your assets if you become incapacitated.
Probate is the procedure to administer the estate of a deceased person. An executor is empowered by the court to manage the decedent’s assets, wrap up the decedent’s financial affairs (deal with creditors, pay taxes, etc.), and distribute the decedent’s assets in accordance with the decedent’s Will, (or if there is no Will, then in accordance with state statutes). In some states, probate is onerous, time consuming and can be very expensive, even for modest estates. Moreover, some state probate laws provide for the payment of arbitrary fees (usually, a percentage of the assets of the estate) to the attorney and/or executor, regardless of how much work they do. Washington is not one of those states. In fact, it has one of the most streamlined probate systems in the country, with little court involvement and no arbitrary fees (the attorney for the estate is only entitled to his or her normal hourly rate and only for the work they perform). Usually, it is not worth the extra cost to avoid probate here. (However, if you own real estate in another state, you can avoid an additional probate in that state by having the property owned by a living trust.) Also, for some clients the use of a community property agreement or joint tenancy ownership can be a more appropriate and less expensive way to avoid probate than using a living trust.
There are no estate, gift or income tax advantages or disadvantages to using a living trust instead of a Will. Moreover, unless an individual or a couple has more than $2 million, the state or federal estate tax will not apply to their estate in any event. For couples who do have to plan for the estate tax, we frequently recommend using a living trust as it does not cost any more than a Will and offers the potential benefits of probate avoidance, privacy, ease of amendment and lifetime management of their property. We “trust” you have found this information helpful.
