While making an estate plan, a big concern for many people is whether they can arrange for the estate to avoid going through the probate process after they die. Reasons for this vary, but some of the biggest complaints are that probate either costs too much or takes too much time. However, it’s a misconception that probate in the state of Washington is a difficult process—it’s actually a fairly streamlined process for all but the largest and most complex estates. Nevertheless, there are certain advantages to avoiding probate, and living trusts are a prime estate planning tool to help with this.
What Is a Living Trust?
A living trust is simply a legal document that you and your attorney create, designed to take your assets and place ownership of them in a legal entity called a trust. When you die, the trust will automatically transfer the assets to the heirs or beneficiaries that you’ve chosen ahead of time without needing the intervention of the probate court.
There are several kinds of trusts for you to choose from, but the one that most people are familiar with is called a revocable living trust.
Aside from avoiding the time and expense of probate, a major advantage of a revocable living trust is that it may be changed or even entirely done away with by the grantor (the person who created the trust and to whom the trust belongs) at any point before he dies. However, once the grantor has died, the terms of the trust become absolute and may not be altered.
Compare this to an irrevocable living trust, where the terms must be fixed when created and control turned over to a disinterested third-party trustee. Once an irrevocable trust is created, it may only be altered with the permission of both trustees and beneficiaries.
There is one major tradeoff for a revocable living trust, however: tax benefits after death. Since the grantor retains full control of the trust and its assets during his lifetime, the IRS does not consider the revocable trust as a truly separate tax entity. The result is that the assets held in the revocable trust after death will be counted as part of the estate’s total value and will be used to calculate any estate taxes that may be due. This is less of a concern for many revocable trust holders, as only estates valued at over approximately $2,000,000 (this amount is adjusted annually) typically end up owing any estate tax at all.
The flexibility that a revocable trust offers is often a worthwhile tradeoff for many, but if tax burden is a concern, then an irrevocable trust may be worth considering instead. Since an irrevocable trust is truly outside of the control of the grantor, the IRS does not consider the assets in the trust to be a part of the estate when calculating taxes, which can greatly impact the final bill for larger estates.
Other Benefits of Living Trusts
There’s one other benefit that any living trust has over a will that few people consider: privacy. If you have a will, it must be entered into probate court to determine validity. Probate proceedings are considered a matter of public record, meaning that your will and the details of any assets become available for viewing by anybody, potentially making your personal family affairs visible. Trust documents, however, are private, allowing your surviving family, heirs, and beneficiaries the security of knowing that your last wishes belong only with them.
Get Help Creating Your Living Trust
Living trusts are a source of many misconceptions, but the benefits of having a trust are clear: no matter which type of trust you choose, trusts can save your family time, money, and offer the dignity of privacy to your family’s personal affairs when you’re gone.
Whether you’re ready to secure your family’s future with a trust right now or you need help with your existing estate plan, the Law Offices of Molly B. Kenny is here to help you. Call us by phone, or use the contact link on this page to arrange a private consultation with an estate planning professional in our Bellevue office.