(provided by Dick & Karen Sayre, Sayre & Sayre, p.s.)
Inter Vivos or "living trusts" are commonly used to avoid probate; however, with recent changes to our Washington probate law, their creation and administration may be more costly than a probate under a properly drafted Will. We often use living trusts to manage assets for disabled individuals where Medicaid is not an option, and a Durable Power would be inappropriate, or to distribute property located outside of this state which is owned by a resident of Washington. At the time of death, the property located outside this state will pass pursuant to the trust, and an "ancillary" probate in the second state can be avoided, thus saving probate and attorneys fees for the survivors.
One important use of a living trust is in the context of disability planning, where a trust is set up for the benefit of a spouse, parent or other disabled individual. A durable power of attorney authorizes the agent to fund the living trust in the event of disability, and it is then funded when that circumstance takes place. Because Medicaid laws limit such funding, using these trusts for disability generally works best for people with substantial assets who do not wish to avail themselves of Medicaid assistance. They may also be funded prior to disability to avoid the need for a guardianship; however, such an approach may be inconsistent with planning for Medicaid eligibility, which are issues that must be reviewed with your attorney.
Generally, the funding of such a trust results in a period of Medicaid ineligibility and, if the trust is irrevocable, that period could extent to as long as five (5) years. In those instances, we use testamentary trusts (trusts set up in Wills), which have specific state and federal exemptions to the Medicaid transfer rules, where living trusts do not. Finally, Washington law permits a Guardian to set up and fund a trust under appropriate circumstances. Great care must be taken to insure that a trust created for medical assistance is carefully drafted and, most importantly, funded properly to be certain that assets placed into such a trust are not "counted" for purposes of Medicaid. Generally, living trusts are not appropriate Medicaid planning devices.
While trusts can be very useful in some kinds of disability planning, they are highly specialized documents, and must be carefully crafted if they are to achieve your objectives. In many cases, a living trust is either inappropriate or will not achieve the desired outcome, given current Medicaid laws. Any discussion of an intervivos or living trust must be made in as part of a visit to your attorney, because they are complicated and require the intervention of skilled professionals. If disability is an issue, use of a qualified Elder Law Attorney or attorney who specializes in disability law is a must.
Beware of free living trust seminars warning of incredible probate fees, who promise that their product will solve all of your problems, shelter assets from Medicaid availability, avoid probate, etc. Much of what you hear at these seminars is simply sales hype, is designed to sell the product offered (living trust services) and may be only partially true. While probate fees in California and some other states are indeed high, Washington attorneys charge only on an hourly rate basis, resulting in total fees in amounts which often are less then the cost to create and administer the living trust. Our legislature has amended Washington probate laws to eliminate the requirement of filing an inventory in a probate file (one of the objections to probate over the years), and to no longer require the publishing of notice, as well as streamlining the process. The result is a vastly simplified probate which can be done at relatively low cost.
Additionally, estate taxes can be avoided or reduced by the use of a properly drafted living trust or by testamentary transfer (Will and probate). If an estate tax is due, it will be due regardless of whether the estate passed through probate or via a living trust. There are good reasons to choose a living trust, but get all the facts from an independent attorney hired by yourself and not "provided" by the trust seller before you make your final decision. A little measure of caution could very well save you time and money.
These are specialized documents, they should be individually tailored for each person. There is no "one size fits all"and they are not for everybody. Unless your estate exceeds the current tax ceiling, or you have unusual needs, most people would not benefit significantly from such a trust here in the State of Washington and, if not properly administered, you might actually be harmed. Each case must be evaluated upon its own merits however, so in all cases, individuals considering a living trust should consult with their own personal attorney before they enter into such an arrangement.
In short, while living trusts may be useful for you, for most folks the cost of a trust is about the same as the cost of a probate. The trust requires "maintenance" by the transfer of your assets into the trust or it will not work, then you'll be stuck with doing a probate to transfer assets into the trust, so it can transfer them out again. For individuals where probate avoidance is preferred, Medicaid is not an issue, or where out of state property is a concern, living trusts work well. For most of us, a Will, community property agreement and durable power of attorney will do the job nicely, and for less money.
(Sayre and Sayre is a Spokane-based law firm specializing in Elder Law issues)
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