Trusts in Washington

Trusts: A Modern Guide 

This article will demystify trusts by explaining what a trust is and how it functions and helping you to decide whether a trust can help you meet your financial and testamentary goal. 

You've probably heard the term "trust" thrown around in movies or financial articles, but what does it really mean for you? If you're building a career, buying a home, or starting a family (pets included), it's time to get a grip on this powerful financial tool. While a trust might sound like something only for the wealthy, this is not the case. Trusts are versatile tools that can benefit anyone, regardless of wealth or size of the estate. 

What a Trust Does

Juggling the roles of Grantor, Trustee, and Beneficiary

At its core, a trust is a private legal arrangement where you (the grantor) craft a set of rules to manage and protect your assets, like your house, money, or investments. You name someone you trust (appropriately named the trustee) to manage those assets using these rules for the benefit of someone else (the beneficiary). Your beneficiary can be you, your family, or even a charity. A major benefit is that if you become too sick or incapacitated to manage your affairs, the trustee can take over for you. Beyond this, trusts keep your business and finances private (by offering a method to direct distributions that does not require filing into public record) while also offering a number of other tax and financial benefits.

Since you invent the rules (so long as they are legal), you can be as general, or specific, about what happens to your assets and how they are managed. You can say things like: "My house (which would be described by its unique parcel number) will be managed by my trust [insert trust name and signing date here] until my youngest child (if left unnamed this leaves room for issues...) turns 25, at which point it (the home would be restated for extra clarity here as well) should be sold and the proceeds split evenly between my children (who would be listed and labeled, by name, previously in the trust).” You could also direct that a child gets $10,000 from the trust when they graduate college, and another $5,000 every year for five years after that. If you’re charitable, you could leave 25%  of your estate to the local animal shelter or your church. The sky is the limit with trusts as the law generally lets you use whatever rules you like, as long as they’re not immoral or, as alluded, illegal. 

Why a Trust in Washington Might Be Right for You (or Not)

Trusts aren't a one-size-fits-all solution. They come with a cost for setup as well as involve ongoing costs incurred during administration. If you own limited assets, such as a simple savings account and a car, a trust may not be right for you. However, you may still want the privacy trusts offer or wish to minimize the probate process once you pass. The decision really boils down to your goals and the complexity of your financial life. A trust is capable of protecting oceans of assets, while you may only have a bathtub, or a glass of water worth, they are still yours and worth protecting. Our estate planning attorneys are always willing to discuss strategies with you and provide personalized advice as to whether a trust in Washington is the best option to meet your goals. Remember, at the end of the day, this is YOUR estate and it will be your decision on which documents will, or will not, be used to protect and direct it. 

The Most Common Types of Trusts

Let's dive into the types of trusts that people most frequently ask about, (this list is in no way exhaustive):

1. Revocable Living Trust

• What it is: The most flexible type of trust. You can change it, add to it, or even dissolve it at any time during your life. You often act as your own trustee while alive.

• Best for: Anyone who wants to maintain control over their assets while planning for the future. It's a popular choice for reducing, but not eliminating, probate costs and managing assets if you become incapacitated.

• Reasons to Avoid: Revocable trusts do not typically provide tax benefits since the IRS and public assistance programs look at what you own or control. 

  
  

2. Irrevocable Trust

• What it is: Unlike the revocable trust, once you create this irrevocable trust, you've essentially given up control of the assets you place inside it to the whims of the established terms you set for the trust. You can't change the terms after creation without the unanimous consent of the listed beneficiaries within the trust. Depending on the size of your estate, and family tree, this list could be extensive and involve a litany of backgrounds or beliefs about what the appropriate update would be. 

• Best for: High-net-worth individuals or those who want to protect assets from creditors and reduce estate taxes. Long term investment strategies where the grantor wishes to “set and forget” instead of worrying about what to do with the assets moving forward. 

• Reasons to Avoid: Irrevocable trusts can be complicated to manage and may require additional tax filings (e.g., an IRS 1041) if assets earn revenue or income. 

  
  

3. Irrevocable Life Insurance Trust (ILIT) 

• What it is: A specialized irrevocable trust designed to own a life insurance policy. When you pass away, the death benefit is paid to the trust, which then distributes it to your beneficiaries.

• Best for: Individuals with significant estates who want to ensure their life insurance payout isn't subject to estate taxes.

• Reasons to Avoid: Your life insurance policy may not be large enough to risk estate tax, meaning you’re adding unnecessary complications to your estate plan.

  
  

4. Special Needs Trust (SNT)

• What it is: A trust designed to hold assets for a loved one with a disability. It's carefully structured so the assets do not interfere with their eligibility for government benefits like Medicaid or Supplemental Security Income (SSI).

• Best for: Anyone with a family member who has a disability and receives government assistance, or may become eligible for governmental assistance upon the reduction of their directly controlled assets. 

• Reasons to Avoid: The trust’s value is significant enough to allow a trustee to take care of them by providing care that’s not available through public assistance. 

  
  

5. Pet Trust

• What it is: A trust to designate the finances, individuals, and specific instructions that will care for your beloved pet, as well as for your work animals. Rest assured that even the most picky critter receives the care you want them to receive, from someone you trust to do it right.

• Best for: Farmland owners, general pet owners, or those with high value (or otherwise cherished) work/entertainment animals (like horses/racehorses) who want to ensure that their animal(s) are cared for or managed appropriately.

• Reasons to Avoid: None besides possible financial barriers. Your animals love you unconditionally and you should, in return, make sure they are taken care of if you pass before they do. 

Establish Your Estate Plan

Your Next Step: Don't Wait

Choosing the right type of trust is a personal decision that depends entirely on your specific goals. Do you want the government to decide what happens to your assets instead of you? Would you like to provide for a loved one with a disability or need to control how quickly your loved ones have access to the full extent of the estates funds? Your answers will guide your path and help the attorney provide the experienced guidance you need to ensure your wants are accomplished and nothing is missed along the way. 

Ready to explore your options? We have a wealth of resources to help you understand what's best for your situation. Contact our estate planning attorney to get personalized guidance on your trust and estate planning needs. We have years of probate experience under our belt, and have seen the holes left in estate plans. Let us help you ensure your plan is bullet proof.