Revocable Living Trusts What You Need to Know About Revocable Living Trusts

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Revocable Living Trusts What you need to know about revocable living trusts

What is a revocable living trust? A revocable living trust is a written agreement in which the trustor, the person who creates the trust, names a trustee and governs the manage- ment of trust assets during the trustor’s lifetime and upon the trustor’s death. Establishing the revocable living trust (RLT) essentially creates a legal trust entity, to which the trustor transfers ownership of some or all of his or her assets. RLT-owned assets typically include the trustor’s resi- dence and financial accounts. Usually retirement accounts such as IRAs are not transferred to the RLT. As with any estate planning document, each situation is unique and the RLT- based plan should be tailored to the individual’s particular circumstances, assets and goals. (Although this re- is usually referred to as the “succes- upon signing, and that trust becomes source refers to a single trustor, often sor” trustee. If a trustor is elderly or the owner of some or all of the trus- couples create a revocable living trust already facing a debilitating illness tor’s assets during the trustor’s life. If together as their joint estate planning at the outset, he or she may choose a RLT is maintained properly, then a document, in which case both spous- to name a third party as trustee im- court probate proceeding may not be es or partners are usually the trustors, mediately. Depending on the circum- necessary when the trustor dies. The together. Note also that another word stances, a trustor may name a family RLT is an alternative to a will; a per- for trustor that is sometimes used in member, friend, colleague, and/or a son has one or the other as their fun- trust agreements is “grantor;” but professional fiduciary, such as a trust damental estate planning document. only the term “trustor” is used herein company, as successor trustee(s). However, usually a simple will called for simplicity’s sake.) a “pour-over will” accompanies the How is a revocable living trust differ- RLT, to capture any assets outside of Who should serve as trustee of a revo- ent from a last will and testament? the trust. cable living trust? Both wills and RLTs give instructions Typically, a trustor serves as the trust- about the transfer of assets after death. How much does a revocable living ee immediately and throughout the However, a will is essentially sits dor- trust cost? trustor’s lifetime. The trustee is re- mant until the testator – the person The cost of establishing a RLT varies sponsible for carrying out the terms of who created the will – passes away. greatly, depending upon where one the RLT. It is important for the trustor If someone dies with a will instead lives, attorney fees, and the level of to designate at least one alternate to of a RLT a court probate proceeding complexity of the trustor’s situation. serve in the event of the trustor’s inca- is often required. By contrast, a RLT In addition, usually RLTs are created pacity or death. The alternate trustee agreement creates a legal trust entity as part of a comprehensive estate plan

A Washington State Bar Association consumer information guide created in cooperation with the WSBA Real Property, Probate & Trust Section Revocable Living Trusts that includes other documents such as complished with a RLT as with a will. Why have I heard from friends or powers of attorney. Some attorneys (In 2013, an individual’s estate is ex- relatives who live in other states that perform estate planning work on a “flat empt from Washington’s estate tax if a revocable living trust is superior to fee” basis, while others charge hourly the net estate is less than $2 million, a will? rates. If cost is a concern, it is usually and exempt from federal estate tax if Approaches to estate planning vary a good idea to compare cost estimates the net estate is less than $5.25 mil- significantly from state to state. For from two or more attorneys. lion. These exemption amounts will example, in some states only RLTs are increase over time because, under used. Moreover, the probate process Can a revocable living trust be current law, both the state and federal varies greatly among states in terms changed? exemptions are indexed for inflation. of cost, benefits, complexity and- du The terms of a RLT can be changed In addition, and in general, estate tax ration. For Washington residents, the at any time, which is usually accom- laws often change.) decision about whether to establish a plished by amending the document or, RLT or a will is an individual one that if the changes are substantial, by restat- What are the advantages of a revo- is best made in consultation with an ing and amending the trust document cable living trust compared to a will? experienced estate planning attorney. in its entirety. Moreover, a RLT is, as the name states, revocable, and may be RLTs offer some advantages, includ- cancelled in full at any time before the ing: This pamphlet was prepared as a public ser- trustor’s death. vice by the Washington State Bar Associa- • Private transfer of assets to benefi- tion. It contains general information and is not I often hear mention of “trusts.” How ciaries after death instead of pro- intended to apply to any specific situation. If you need legal advice or have questions does a revocable living trust compare bate, which creates a public record; • May avoid (if properly created and about the application of the law in a particular to other types of trusts? matter, you should consult a lawyer. There are many different types of maintained) the requirements and trusts, some of which are created dur- expenses of a probate; Washington State Bar Association ing the trustor’s lifetime and others that • Designation of another person to 1325 4th Ave., Ste. 600 are created only after death. Different manage one’s assets during life is Seattle, WA 98101-2539 trusts have different purposes, such as easy, if desired. 800-945-WSBA • 206-443-WSBA minimizing estate taxes or providing www.wsba.org for a disabled family member. In gen- What are the disadvantages of a revo- eral, the RLT’s purpose is to provide cable living trust compared to a will? for a relatively straightforward and There are also disadvantages to RLTs, private process for transferring assets including: after death. • RLTs are not as common as wills in Does a revocable living trust protect Washington and their unfamiliar- assets from potential lawsuits and ity can complicate matters after the creditors? trustor’s death; No; contrary to popular belief, the • RLTs are usually more expensive transfer of assets to a RLT does not to establish than a will because of provide meaningful protection from the time involved in ensuring that potential lawsuits and creditors. appropriate assets are transferred to the trust; Are there tax reasons to have a revo- • Administering a RLT without a probate does not provide the cable living trust instead of a will? helpful and protective aspects of No, there are no tax advantages to us- probate, which include creditor ing a RLT instead of a will. The cre- deadlines and a court venue for ad- ation of a revocable living trust has no dressing disputes; effect on the trustor’s personal income • Ongoing maintenance is required tax situation; all income and expenses to ensure that appropriate assets are reported on the trustor’s regular, are held in — and new assets are individual tax return. Also, the same acquired by — the RLT. gift and estate tax planning can be ac-