Revocable Living Trusts might be the most misunderstood of all estate planning documents. What is a Revocable Living Trust? Simply put, it’s a Trust that can be revoked by the person who created it during that person’s lifetime. A Trust is an agreement under which a person (the “Grantor”) designates another person or entity (the “Trustee”) to manage the assets titled in the name of the Trust for another’s benefit (the “beneficiaries”). In a Revocable Living Trust, the Grantor is typically the beneficiary of the trust during the Grantor’s own lifetime. The Grantor reserves the right to revoke (i.e., remove) all or a portion of the property from the Trust. RCW 11.103.030 governs trust revocation in Washington State.
Revocable Living Trusts offer three primary benefits: 1) They allow for the distribution of a person’s assets held by the Trust after death without probate; 2) They protect privacy by allowing for the distribution of these assets without any (or minimal) court filings, and the terms of the Trust itself can remain private; and 3) Trusts can facilitate asset distribution in blended families. How? In a second-marriage scenario, a woman in a second marriage may want to leave her assets to her current spouse, but have anything remaining pass to her children from her prior marriage. With simple Wills, if the wife were to die first and leave everything to her spouse, anything remaining after the spouse dies would be distributed under the spouse’s Will. And that Will may not include the children from the wife’s prior marriage. A Revocable Living Trust can create structure and control over how assets are distributed when the second spouse dies.
Upon the Grantor’s death, a Revocable Living Trust becomes irrevocable. This means that assets can no longer be transferred out of the Trust other than by distributing them to the Trust’s beneficiaries. The assets either continue to be managed according to the terms of the Trust for the benefit of remaining beneficiaries of the Trust, or – more likely with Revocable Living Trusts – the Trust assets are distributed directly to the Grantor’s designated beneficiaries outside of trust, without the need to go through probate. In states that are not Washington (I’m talking about you, California!), Revocable Living Trusts are quite common, as they allow for the distribution of a person’s assets after death without a slow, expensive probate.
While Revocable Living Trusts do have benefits, and in some circumstances may be a good estate planning choice for Washington State residents, they also have drawbacks. In my next two posts in this series, I will discuss some common downsides (the Bad) and pitfalls (the Ugly) found in Revocable Living Trusts for Washington residents. As with any estate planning decision, an honest conversation with an estate planning attorney will go a long way toward ensuring you end up with the best set of documents to achieve your estate planning goals.
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