Can You Trust Your Trust?

I recently saw an article in the February 21, 2021 Santa Cruz Sentinel in which two California elder law attorneys, Len Tillem and Rosie McNichol, responded to a question posed by “Mimi.” In essence, Mimi was upset because a probate seemed to be needed for her deceased mother’s estate even though her mother had executed a Revocable Living Trust. Mimi asked, “I don’t want to ask her attorney because it costs so much. Where are my civil liberties if no matter what mother wanted done with her hard earned money, the court gets to make the final ruling? Why are lawyers telling people to set up living wills and trusts if they do not protect our personal rights?”

In their response, Mr. Tillem and Ms. McNichol issued a simple, clear, and true statement, which is equally applicable under Washington law as it is in California: “Trusts are not automatic.” Just because someone has a revocable living trust is not a bullet proof guarantee that a probate will not be needed. An example that often plays out in real life was called out by the two attorneys, “[Trusts] have to be properly funded and administered in order to work. Your mother should have taken her trust documents to the bank and had most of her accounts retitled within her trust. Apparently she did not do this, and it’s not something the lawyer could have done for her.”

A trust governs trust assets, and that’s it. So let’s say, for example, Mimi’s mother had a savings account at the fictitious Community Bank of Santa Cruz. Upon the death of Mimi’s mother, an estate attorney would take a look at how that account is titled. If the savings account is titled in the name of “The Revocable Living Trust of Mimi’s Mother dated January 1, 1990” then the funds held in that savings account will be distributed pursuant to the terms of the trust. Those funds are considered to be a “trust asset.” But if, instead, that savings account is titled in the name of “Mimi’s Mother,” then the funds held within that account are not trust assets. Generally speaking, the funds will be distributed pursuant to any beneficiary designations Mimi’s mother might have added to the account.

If Mimi’s mother failed to add any beneficiary designations, what happens then? In Washington, if the funds in the savings account, along with other non-trust assets lacking beneficiary designations, do not exceed $100,000, then those funds can be administered pursuant to a small estate affidavit pursuant to RCW 11.62.010. But if those assets exceed $100,000, a probate will likely be needed. Mimi’s mother hopefully executed a “pour over will” which serves to garner the assets that are not titled in the revocable living trust, and distribute them into the trust so they will then be administered according to the trust’s terms.

Has your revocable living trust been properly set up and funded, so that you can trust your trust? Please let us know if you have questions. We’d be happy to help.