Do I Need a Trust?
By Kendel Froese | December 1, 2022
Many people have come to me and said, “I need to have a trust.” When a client says that to me, my first question is always “Why do you think you need a trust?” Often, folks think they need a trust because that’s what so-and-so relative or friend has. Or the client follows this or that famous financial guru who says everyone needs a trust. My professional opinion is that a Last Will & Testament will meet the needs of most people. Here are a couple scenarios in which considering a trust might be a good idea.
A couple important points to get started:
If you create a trust as your main estate distribution tool, it is vitally important that you are incredibly diligent about ensuring that all of your assets, including those that you continue to accumulate after you create the trust, are titled in the name of the trust. If you do not title your assets in the name of the trust, it is likely your estate will need to go through the probate process - which for many folks, avoiding probate is a part of why they wanted a trust in the first place!
If you have a trust, you will need a Last Will & Testament along with the trust. The reason for this is you need a Will to catch any assets that you may have inadvertently forgotten to title in the name of your trust (see the bullet point above). This is commonly referred to as a “Pourover Will”, because it is meant to catch any missed assets and “pour them over” into your trust and its distribution scheme.
Laws related to estate planning can vary greatly depending on what State you live in. If you know someone who swears that the only good option is to create a trust, it’s possible that they live in a state where the probate process is complicated (like California) or there are other factors determined by state law that make creating a trust a desirable option.
You might want to consider a Trust in the following situations:
Large estate: As I have discussed on the Blog before, Washington state has an estate tax that applies to estates that are larger than $2.193 million. For more on the estate tax, check out these Frequently Asked Questions on the Department of Revenue website. If you are trying to avoid your estate being assessed the estate tax, an option is to think about creating a trust. It is important to note that in order to accomplish this, your trust must be irrevocable, which means you can’t change it. There is a process called decanting, in which the trust assets are moved to a new trust with different terms. This process should not be relied upon as an easy option to “undo” an irrevocable trust. With an irrevocable trust, you also cannot serve as the trustee of your own trust, which means that you have to designate someone else to be in charge of your assets. Creating an irrevocable trust creates a legal entity that is completely separate from yourself as a person, which is why it is not considered to be “your” assets in terms of applying the estate tax.
Privacy: When you die and your Will is filed with the petition to open probate, your Will becomes a public record. For some people, privacy is of utmost importance and the thought of their Last Will & Testament becoming a public record is less than ideal. If this is someone’s main objective, I would suggest considering a Revocable Living Trust, which as you can likely tell by its name, can be revised or revoked after being created. Another bonus of a Revocable Living Trust as opposed to an irrevocable trust is that you can serve as the trustee of your own Revocable Living Trust. The document creating the Revocable Living Trust is not a public document, and while your Pourover Will may need to be filed with the court if you missed re-titling any assets, your Pourover Will generally just says that your assets are to be given to the Trustee of the Revocable Living Trust. The specific gifts designated in your trust document are still kept private.
You own real property in multiple states: If you own real property (i.e., land and/or buildings) in multiple states, a Revocable Living Trust can be a good option so that your estate doesn’t have to go through probate in every state where you own property.
In sum, a trust can be a good option for some folks, but in my opinion it’s not the end-all be-all for everyone.
Froese Law is happy to answer your questions about estate planning, including whether a Trust is a good option for your situation.
Call/text Kendel at 509-514-5317, instantly schedule a meeting, or contact us.