Revocable Living Trusts
Our clients commonly use Wills to implement their estate plan. For some, though, a revocable living trust during life might be a good option. Usually, our clients are the trustees of their own trust, and name a successor trustee for later. Assets are held for their benefit for their lifetimes. The trust includes provisions directing where assets pass at death. Estate tax savings tools can be part of the trust agreement. Assets need to be titled in the name of the trust to avoid probate. This may be as simple as changing the name of bank or brokerage accounts. We prepare deeds to transfer real estate to the trust. Revocable trusts also help in the event of illness or incapacity. They do not provide asset protection. Revocable trusts may be a good fit for clients who are retirement age or older or clients who have assets in multiple states, rather than young families just starting out.
What is the difference between a revocable trust and an irrevocable trust?
A revocable trust, as the name suggests, can be amended or revoked entirely during your lifetime. An irrevocable trust is one where you give away the property to a trust that can’t be amended, it can’t benefit you and you can’t get it back. For example, if you wanted to set aside a significant amount of money for your children to get it out of your estate but your children aren’t ready to manage the money themselves, you could set up an irrevocable trust for them.
Why should I avoid probate?
Washington probates aren’t as difficult or expensive as probates in other states. At the same time, some clients prefer to make it easier for their families to settle their affairs without going through probate.
Do I have to get a new tax ID number for a revocable trust?
No, you don’t need a separate tax ID number for your revocable trust during your lifetime. You can just use your own Social Security Number.
Do I have to change my accounts into the name of the revocable trust and change title to my home?
Yes, to avoid probate, you should have your financial accounts changed into the name of the trust. You should also have your attorney prepare a deed to convey title to your home and other real estate to the trust. If you don’t, your heirs can end up having to go through probate even though you drafted a trust.
Do I have to change my IRA or 401(k) into the name of the Trust?
No, IRA’s, 401(k)’s and other retirement assets stay in the name of the employee. But it is important to name the beneficiary on the account. Usually your spouse as primary beneficiary and your adult children as secondary beneficiary is the best fit for income tax purposes. (If there are minor children, you’d want to discuss naming the trust for them created under your Will with your attorney.)
Should I put money into a trust to protect it from my creditors?
A revocable living trust does not protect money from the trustor’s creditors. Creditors still can access funds in a person’s revocable living trust. Even if you call it an irrevocable trust, creditors can reach it if you control it in Washington. This rule is different in some other states. Other strategies may work to protect assets from creditors, depending on the types of creditors you’re concerned about.
Should I put out-of-state property in trust, or in an LLC?
Ideally you should put the out of state real estate into the trust to avoid a second probate in that state. Putting it in an LLC can help avoid probate and can also help with liability. But it can also cause it to be taxed under the Washington Estate tax. It’s important to discuss the pros and cons of this with your attorney.