IS A REVOCABLE LIVING TRUST RIGHT FOR YOU?

You have probably seen articles discussing the benefits of using a revocable living trust as your primary estate planning tool. Such articles sometimes include horror stories of estates that go through probate and incur tremendous costs and delays in settling the estate. These articles tend to be written for national publications based on generalizations rather than state specific analysis. In Washington State, we are fortunate to have probate laws that provide for the quick and efficient settlement of estates. As a result, in most circumstances, a revocable living trust offers little or no advantages, but rather can actually be more costly and cumbersome than probating an estate.

The following are a few common misconceptions about revocable living trusts for Washington residents:

1. A revocable living trust does not always avoid probate. A revocable living trust only provides for the disposition of assets in the trust. Consequently, if at the Grantor’s death the Grantor has any assets not transferred into the trust, it may be necessary to open a probate to provide for the disposition of those non-trust assets.

2. A revocable living trust does not automatically provide a quicker estate settlement than a probate. The settlement of a revocable living trust is susceptible to the same delays that can draw out a probate: estate tax issues, contests by heirs, difficulty in identifying assets. In Washington, our favorable probate laws provide for the quick and efficient settlement of estates with minimal court intervention.

3. A revocable living trust is not the only way to provide for the ultimate disposition of one’s assets. Any dispositive scheme that can be done through a revocable living trust can also be done through a properly drafted Will.

4. A revocable living trust does not provide any more protection from estate taxes than a properly drafted Will.

5. A revocable living trust does not provide income tax advantages. During the Grantor’s life, any income generated by the trust assets must be reported by and is taxable to the Grantor just as would be the case if the assets were not in trust.

6. A revocable living trust does not provide creditor protection. The assets in the trust are subject to claims of the Grantor’s creditors just as would be the case if the assets were not in trust.

7. A revocable living trust is not necessarily less expensive than the costs of probate. Setting up a revocable living trust and making the initial asset transfers will cost more than the cost of just a Will. In addition, the costs of ongoing trust administration from the time the trust is established and the costs of transferring assets out of the trust after death need to be considered. In other states with statutory attorney and personal representative fees, probate can indeed be a costly proposition. However, Washington does not have statutory probate fees. In Washington, the cost of probate is generally comparable if not less than the total costs of a revocable living trust.

Certain limited circumstances might exist in which a revocable living trust may offer advantages to Washington residents over settlement of an estate by Will through probate. However, in most circumstances a revocable living trust offers little or no advantages, but can actually be more costly and cumbersome. At Aoki & Sakamoto LLP, we specialize in advising and assisting our clients in estate planning and probate matters. If you wish to discuss whether or not a revocable living trust is right for you or have any questions regarding estate planning or probate, please give us a call.

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