Revocable Living Trust
Questions and Answers
A revocable living trust should be considered when preparing estate plan documents. There is much hype about revocable living trusts, and much of it does not apply to people in the state of Washington. The trusts are very popular in California because of the high probate fees and costs in that state. (Public probate can be avoided by setting up an appropriate trust.) Nonetheless, for some people in Washington, a living trust will be a very appropriate part of their estate plan.
What is a revocable living trust?
A revocable living trust is a document signed by the Trustor in which the Trustor sets forth the rules for handling the Trustor’s property after it is transferred into the trust. The rules cover how the property is to be managed during the life of the Trustor, and then what will happen to the property when the Trustor dies. It is called a revocable trust because the Trustor may change or “revoke” the trust. It is called a “living” trust, because it becomes effective while the Trustor is living.
Who are the parties?
The person who transfers his or her property into the trust is the Trustor. The Trustee is the person who manages the property for the benefit of the Trustor. In many cases, the Trustor is also the Trustee. Any person who receives property or benefits under the trust is called a Beneficiary. The Trustor is usually the sole Beneficiary until the Trustor dies. A Successor Trustee is the Trustee who manages the property and follows the rules of the trust after the Trustor or one of the Trustees dies or becomes unable to serve as Trustee.
What are the advantages?
Common reasons a person would want a revocable living trust include the following:
- Public probate is avoided at the death of the Trustor, so the details of the Trustor’s estate plan and property are kept private.
- If a Trustor needs help with investments or property management, a Trustee can make decisions and manage property for the benefit of the Trustor.
- Placing property into a trust is a way for the Trustor to organize his or her property and affairs before death, so that the ultimate beneficiaries have an easy transition.
- If real estate is owned in another state, the Trustor can avoid probate in that other state by placing the property into a revocable living trust.
Are there disadvantages?
The following points should be considered before deciding whether a revocable living trust is right for a particular individual:
- Preparing the trust documents and transferring the Trustor’s property into a trust is more costly than writing a will. And, the expenses of transferring the property into the trust are incurred now. Without the trust, the costs of transferring property are incurred later, through a probate proceeding.
- In larger estates, savings on estate taxes can be accomplished either by a will in probate, or by a living trust.
- In Washington, a community property agreement can be a simpler way to accomplish probate avoidance if two spouses wish to transfer all their property to the survivor spouse when the first one dies.
- Proper insurance planning and account titling are also ways to avoid probate.
What is the most common mistake made when setting up and operating a revocable living trust?
The most common mistake is that the Trustor does not transfer all of his or her property into the revocable living trust. In this case, a probate may be required after death in order to transfer whatever property did not get transferred before the Trustor’s death.
Who is a good candidate for a revocable living trust?
Anyone considering a revocable living trust should talk to their estate planning attorney or other trusted advisor. Together, they can review the advantages of such a trust and discuss the individual’s circumstances and then decide if a revocable living trust makes sense for that person. In Washington, many married couples will not need a trust if they are relying on a properly written community property agreement. If a person owns property in another state, especially states with high probate fees and costs (e.g. California, where the attorney is entitled to a percentage of the estate), a revocable living trust may save a lot of money, even if the only property in the trust is the out-of-state property.
This information is general in nature and should not be relied upon for your specific circumstances. For information, questions, or comments, please contact Douglas J. Engel or Kathryn S. Kumar.