A seemingly simple question, based on internet searches, word of mouth, and common misconceptions. Trusts have a great reputation as they provide secrecy, avoid probate, and are more flexible. However, as with most legal questions, the answer is not always simple, and can boil down to ‘it depends.’
There are a few quick questions that can help you determine which route is better for you and your estate planning needs and goals. I will briefly examine each one in turn; keep in mind that the answer to any one question is not determinative of which route you should choose. You should examine the totality of your estate and planning goals when making your decision.
1. Do you own real estate outside of Washington?
If you own real estate in multiple states, or even just a different state than Washington, a trust could be beneficial as the terms of the trust would dictate the disposition of your real property. If your property is not held in a trust, your heirs will utilize the probate process in each of the respective states in which your real property is located. This means that if you own a vacation home in the Florida Keys (an absolutely awesome location, congratulations on your success!), but your primary residence is in Washington, your heirs will go through the probate process in both Washington and Florida to obtain clear title to those two properties. Now add the probate process for any additional states in which you may own property, and your heirs are suddenly subjected to court proceedings in multiple jurisdictions. That isn’t fun even in the best of times, and keep in mind that your heirs just lost their loved one, namely, you.
2. Do you have permanent dependents?
If you have children or other dependents who are going to maintain that status permanently, e.g., children with special needs, or you have dependents who you may not trust with a sudden windfall (somewhat of a misnomer, as again, they have just lost a loved one, who is the source of their windfall), such as heirs with substance abuse issues or a gambling addiction, you may want to elect to set up a trust so that a trustee will make distributions of the trust property to your heirs at intervals or triggering events that you dictate. For instance, a trustor (person creating a trust) gets to provide guidance to the trustee (or successor trustee, after the trustor’s passing) as to how to distribute property from the trust to the beneficiaries. This guidance can be narrow or broad, specific or general, and can use ascertainable standards or non-ascertainable discretionary standards; an ascertainable standard is objective, and limits the trustee’s discretion, e.g., distribution for “health, education, maintenance, or support.” By contrast, a non-ascertainable standard is subjective, and grants nearly unlimited discretion to the trustee, e.g., distributions for the “happiness” of the beneficiary. Trusts allow a trustor some ability to control their estate distribution “from the grave” by setting these discretionary standards. Trustors can also elect to distribute property from the trust via age-related thresholds, e.g., once the beneficiary reaches the age of 25 they receive all or a percentage of the property, or via triggering events, e.g., upon graduating college the beneficiary receives all or a percentage of the trust property. The possibilities are nearly endless, except for the pesky Rule Against Perpetuities (just put “this Trust shall continue in effect until twenty-one years after the death of the last survivor of the descendants of King Charles III, King of England living as of the date of this Trust Declaration”).
3. Are you and your spouse US Citizens?
If you or your spouse are citizens of another country, or dual citizens, or have renounced your US citizenship (not sure why, but it’s possible), you may want to consult an attorney licensed in the other country to discuss estate tax implications, if any, and how best to plan and protect your property, or streamline the process for your heirs.
4. Is your net worth more than $2,193,000 (as of the time of this writing in 2023, per Washington State Dep’t of Revenue Estate Tax Tables) each, including any life insurance policies?
If your net worth is more than $2.193 million, first off, congratulations! Second, if the aggregate net worth of you and your spouse is more than $4,386,000, you may want to consider a credit shelter trust. Such a trust is designed to maximize state and federal estate tax exemptions. Utilizing a credit shelter trust allows couples to place money and/or property into a trust created in the will of the predeceasing spouse for the benefit of the surviving spouse. The transfer of the money and/or property removes those assets from the predeceasing spouse’s estate for purpose of probate and estate taxes. Turns out you can (to a degree and with careful planning) avoid the certainty of taxes, although even the best attorney cannot help you avoid the certainty of death.
5. Do you or your spouse have children from another marriage?
This one might be the most uncomfortable to answer. However, the discomfort is worth confronting for the benefit of your children. While you and your spouse might love, cherish, and treat each other’s children from another marriage as your own, there is no guarantee that such an arrangement lasts after your death. I have seen even the closest-knit families come apart at the seams following the death of a loved one, and you should plan accordingly, if for no other reason than to avoid any possible disputes between your heirs.
6. Do you own weapons prohibited under the recently enacted SHB 1240 (the “assault weapon” ban)?
If you own an AR-15 or similar semiautomatic rifle, you may want to consider a gun trust to provide for easier distribution to heirs of those weapons. With the passage of the “assault weapon” ban, one of the only ways to acquire those commonly owned rifles is to inherit them, which can be a difficult thing to prove. Several legal challenges are currently working their way through the courts, and I expect the ban to be ruled unconstitutional, but in the meantime, if you would like to set up a gun trust, contact me for help.
Summary
To summarize, a trust can be a very valuable and more flexible estate planning device. However, trusts come with a cost, namely administration. Every year, the trust pays taxes, provides an accounting to beneficiaries, and holds title to property, with all of the attendant taxes, etc., payable by the trust. With the complexity of trusts, if most of your answers to the above questions are not clearly in favor of a trust, then a will probably suffices for your estate planning needs. If you have more specific questions or would like more information, schedule a consultation, and I would be happy to help.