Wills and trusts are two different estate planning methods of transferring your property from you to your loved ones our other beneficiaries upon your death. The main difference between a will and a trust is that a will takes effect only after the death of the maker, or “testator,” and only after a court determines it is a valid will—properly signed and witnessed—in a probate proceeding. A trust takes effect as soon as it is created and property is transferred to it such as by a deed from the maker, or “trustor”, to the trustee, who then owns and administers the property according to the terms of the trust.
WILLS
The advantages of using a will to transfer your estate upon death rather than a trust are that a will is usually simpler and less expensive to have prepared for you, and does not require changing the ownership or title to all your property and accounts because it automatically applies to all property in your name at the time of your death. A will has no effect until then, and can be changed or amended by a “codicil” at any time as long as you remain mentally competent. Although a will requires a probate proceeding to give it effect, in Washington, probate cases are relatively simple and efficient. The court validates the will, and appoints the executor or “Personal Representative” named in the will, who is given the authority to administer and transfer the estate property without court supervision, similar to the authority of a trustee of a trust.
REVOCABLE LIVING TRUST
There are various types of trusts, and a common type for estate planning is the Revocable Living Trust or “RLT.” As its name indicates it can be revoked or amended at any time by the trustor (or trustors if a married couple) during his or her lifetime, and provide for who will receive the trustor’s property upon his or her death, without the necessity of a court probate proceeding. The trustee or co-trustees are usually the trustors, who transfer their property to themselves as trustees. The trust also designates a successor trustee to take over if and when the original trustee becomes disabled or dies.
The advantages of a RLT are that it does not require a court probate proceeding to give it effect when the trustor dies, and therefore it avoids the expense and time frame of a court proceeding. It also keeps the details of the of the trust, its assets, and who will receive it—the beneficiaries— private because the trust does not have to be filed or recorded as a public record, unless there is a need for a court to decide legal issues, disputes, or fill a vacant trustee position.
The disadvantage of a trust, as compare to a will and probate proceeding, is that a trust requires more legal time and expense to create and to transfer all the trustor’s property into the trust. If all property is not properly titled in the trustee’s name, which occurs more often you might think, then it still may be necessary to probate the will of the deceased trustee to transfer the property to a beneficiary.
A trust can likewise be amended unless is provides otherwise. For example, sometimes a Revocable Living Trust of a married couple provides that it cannot be revoked or amended after one of them dies, so that the wishes and estate plan of he deceases spouse, who may have provided for residuary bequests to children of a prior marriage, cannot be changed by the surviving spouse.
TESTAMENTARY TRUSTS
Wills often contain trusts to be established upon the death of the testator(s). Wills of married couples with children usually provide that the surviving spouse inherits all of the deceased spouses property, and that upon the death of the surviving spouse, their children will receive the entire estate in a trust for them if they are under certain ages. For example, a trust for minor children can provide that it remains as one trust to be used for their support and education until the youngest child is age 21 and presumably completed college or vocational school, and then what is left is divided equally among the children in installments such one third and 21, 25 and 30.
Testamentary trusts (and revocable living trusts) are also used to minimize or avoid estate taxes for large estates when one spouse dies and there is a surviving spouse who will inherit the deceased spouses community and separate property, if any. Currently in 2019, the federal estate tax exempts the first 11.2 million of a deceased persons estate ( 22.4 million for a married couple) from estate tax, so very few estates are taxed at the federal level. However, Washington State is one of several states that has an estate tax that starts taxing estates—net of expenses— valued in excess of 2.19 million, unless there is a surviving spouse who inherits the estate. However, if the surviving spouse later dies with an estate in excess of 2.19 million, there will be and estate tax on the amount in excess starting at 10% and progressing upward for larger estates.
One way to avoid or minimize this tax effect is for the wills of the married couple to have a trust for the surviving spouse, often called a Credit Shelter Trust or Disclaimer Trust, that uses some or all of the deceased spouse share of the combined estate to be transferred to a trust for the surviving spouse for his or her lifetime, with the remainder going to their children after the surviving spouse dies. Properly done and funded, the trust assets are not included in the estate of the surviving spouse, thereby reducing the size of his or her estate.
The experienced attorneys at Deno Millikan Law Firm can help you to decide what is the best estate plan for you and your loved ones. Contact us today at 425-259-2222.