Despite the claims of the mass marketers of living trusts, the revocable living trust is not the estate planning tool of choice of most people. For a few people, it is a valuable estate planning tool, but for most, it is not worth the extra expense and record keeping.
The claim that living trusts save estate taxes is simply wrong. Any tax-savings device that can be incorporated into a living trust can just as easily be incorporated into a will, and wills have some minor tax advantages over living trusts. The claim that a living trust avoids probate is true, but misleading. For most residents of Washington, avoiding probate is simply not worth the effort.
Most of what must be done when a person dies (tax returns, valuation and inventory of assets, collection and distribution of the decedent’s assets, payment of creditors, etc) must be done regardless of whether the decedent left a living trust or a will. If the decedent left a will, the will must be filed with the court.
Virtually all probates in Washington are “non-intervention” probates, which means that the court does not intervene. The court’s only involvement is to confirm the validity of the will and the appointment of the personal representative, both of which are usually accomplished in a five-minute proceeding that need not even be scheduled ahead of time. After that, a personal representative’s administration of an estate and a trustee’s administration of a living trust are virtually identical.
The cost of this minor proceeding is generally about the same as the extra cost of a living trust, but probate is an expense that need not be incurred until the time of death. Contrary to the claims many have made, the estate assets are not tied up by the court, and the time and expense necessary to administer the estate are no more than the time and expense necessary to administer a trust.
Living trusts do have their legitimate uses. A person owning real property in several states will want to consider a living trust, in order to avoid ancillary probates in each of the other states.
*Reprinted with permission of the author, Thomas Culbertson of Lukins & Annis, attorneys at law – Spokane
|All assets remain in the name of the owner.||All assets transfer to ownership of trust.|
|Cost: $250 to $750 (estimated, depending on complexity)||Cost: $1,500 to $5,000 (estimated, depending on complexity)|
Income tax is the same whether the assets pass through a Probate or a Living Trust – unless a third person is the Trustee, in which event the taxes will probably remain the same but an extra income tax return will need to be prepared and filed.
Estate and Inheritance Taxes
Estate and Inheritance Taxes will be the same in a Living Trust or through a Will if both documents are planned to eliminate or minimize these taxes.
Costs After Death
|A Will must be probated. This consists of filing the Will with the Court and having a personal representative appointed.||A Trust does not need to be filed with the court nor does a representative need to be appointed.|
Filing Fee $240
Attorney’s Fee $1,500-$2,000
Administration After Death
|Inventory and Value Assets||Inventory and Value Assets|
|Pay Debts||Pay Debts|
|Prepare and file Estate and Inheritance Tax Returns and pay taxes||Prepare and file Estate and Inheritance Tax Returns and pay taxes|
|Prepare and file closing income tax returns||Prepare and file closing income tax returns|
|Distribute assets to heirs||Distribute assets to heirs|
|Will must be filed with the court. No Inventory of Assets required to be filed for death after 12-31-97.||Trust may or may not need to be filed with County Auditor to clear title to land. No Inventory of Assets required to be filed. Trust may need to be presented to banks or title insurance companies (and others) during lifetime to allow borrowing or transfers of title.|
Speed of Distribution
|Distribution is possible before closure of Estate but not recommended until after debts and taxes are determined. Premature distribution subjects Personal Representative to personal liability.||Distribution is possible shortly after death but not recommended until after debts and taxes are determined. Premature distribution subjects Trustee to potential personal liability.|
Challenges can be made to the validity of either document for the same type of reasons such as incompetence, undue influence or mental illness. Litigation can also challenge interpretations, valuations and distributions for the same reasons for either type of document.