Living Trusts
Christopher A. Benson, Esq.
Law Offices of Christopher A. Benson, PLLC
1814 South 324th Place
Federal Way, WA 98003
(253) 815-6940
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Description- A revocable living trust is a legal fiction. It’s you, but it’s not you. Confused? A trust is actually quite simple. Essentially, you can put everything you own into a trust. In the case of a living trust, you will typically name yourself as trustee and name the heirs or beneficiaries of your choosing as the successor trustee. Upon your death, the successor trustee can distribute the property as you specified in the trust without the need to go through the probate process.
For example: John Doe owns a house and a car. John Doe creates a living trust and transfers ownership of the house and car into the trust during his life. The house and car are then owned by the John Doe Trust and John Doe is the trustee. John Doe has one daughter, Jane Doe, who he names as the successor trustee. Upon John Doe’s death, Jane Doe takes over as the successor trustee and distributes the house and the car to herself as John Doe directed in the trust.
Advantages-
A revocable living trust is cheaper in the long run because it can completely avoid the need for the probate process (assuming all creditors are known). In addition, trusts are very difficult to contest and prevent unintentional disinheriting along with other problems associated with joint ownership. If you own property in a different state, a living trust eliminates the need for probate in that state.
A living trust can be instantly transferred to another trustee should anything happen to you (see example above). A living trust is private; it is confidential and is not displayed in public records. A living trust allows you to appoint someone to maintain the trust property for young beneficiaries and minors. There is no need to hire a lawyer again when you want to distribute your estate. Living trusts also provide significant tax benefits.
Disadvantages-
Setting up the trust requires a fair amount of initial paperwork and is more expensive than a will. Setting up the trust also requires a transfer of ownership for all property you want to have in the trust (called “funding”). This sometimes includes revising titles. It is more difficult to refinance property that is in a living trust. The biggest drawbacks are that there is no cut-off date for creditors to bring claims against your trust and that you cannot designate a guardian for any minors through a living trust (However, this can be done quite easily in a “pour-over” will that is added to your trust).
Wills
Description- A will is a document executed by the decedent during life that determines where the decedent’s property will go upon death and who should acts as the decedent’s personal representative. A will goes through a judicial process called “probate” during which creditors of the decedent makes claims against the estate. At the conclusion of the probate process, the assets of the estate are delivered to the decedent’s beneficiaries according to the will.
Advantages-
Setting up a will is simpler and a little less expensive than creating a living trust. Creditors have cut-off date to bring claims against your estate, which they often fail to make. You can appoint a guardian for minors in a will. You do not need to transfer any property, to any entity, in order to make a valid will.
Disadvantages-
Through probate, a will becomes a matter of public record. This probate process can be expensive and time consuming, and more often than not, it will not go exactly the way you had intended. A will does not allow for transfer of ownership for assets and/or property should you become physically or mentally disabled.
Community Property Agreement
Description- A community property agreement is an agreement between spouses regarding the character of their community and separate property. The agreement has the effect of converting all property owned by a deceased spouse into community property, which essentially results in the surviving spouse owning all of the property without the need to go through the probate process.
Advantages- A community property agreement is a simple and effective way to transfer the property of the deceased spouse to the surviving spouse.
Disadvantages- In addition to several negative tax consequences (which can be explained to you by your tax professional), a community property agreement may have other drawbacks. Most notably, a community property agreement may be insufficient to convert all of the deceased spouse’s property (such as certain retirement plans) into community property. Any assets not converted to community property will pass according to the beneficiary designations made by the decedent.
Small Estate Affidavit
Description- Provided for in RCW 11.62 et seq., a small estate affidavit allows for the transfer of personal property from the decedent to the decedent’s successors without the need for probate if the total value of the decedent’s estate is less than $100,000.
Advantages- A small estate affidavit is a cheaper and faster way to transfer pesronal property to heirs than either a will or a trust, particularly when all of the decedent’s debts are known and the decedent’s estate has sufficient funds to pay all claims.
Disadvantages- Real property (such as the decedent’s house) cannot be transferred by the small estate affidavit. There is no creditor claim cutoff for a small estate affidavit.
Joint Tenancy with Right of Survivorship
Description- Joint tenancy with right of survivorship is the co-ownership of property, either real or personal, between the decedent and another person. Upon the death of the decedent, the co-owner becomes the sole-owner.
Advantages- There is no need to use the probate process to transfer property held in a joint tenancy.
Disadvantages- Property held in a joint tenancy is considered a non-probate asset; however, joint tenancy property is subject to the claims of creditors. In addition, the heir who receives full ownership of property held in a joint tenancy may lose several tax advantages.
Power of Attorney-
Description- A power of attorney is a grant by one person to another person to act in their place for a particular purpose. For example, a special power of attorney can be used if you want someone else to be able to sell your house because you will be unavailable to sign sale documents. A durable power of attorney can be much broader an grant another person the authority to maintain and manage your finances and make medical treatment decisions for you in the event that you are incapacitated.
Advantages- A power of attorney can be tailored to your specific needs and wants with regard to granting another person the authority to act on your behalf.
Disadvantages- A power of attorney alone is an insufficient method of estate planning because the grant of authority in a power of attorney ends with the death of the decedent.
Christopher A. Benson, Esq. Law Offices of Christopher A. Benson, PLLC 1814 South 324th Place Suite B Federal Way, WA 98003