Contrary to popular belief, trusts rarely produce large tax savings. Many people create trusts to avoid placing their assets through probate courts. Thus, although trusts can help you save money on probate expenses, they may not reduce your federal estate taxes. If you create an irrevocable living trust, you may be able to reduce your income tax liabilities because you can effectively remove the assets within your irrevocable trust from your probate assets. You may also want to create a trust to help preserve privacy. Because wills are made as part of public records in probate courts, you can preserve anonymity and the identity of your beneficiaries by creating a trust.

You can create a revocable or irrevocable living trust. An irrevocable living trust is one that is not modifiable. You cannot change the terms of an irrevocable trust instrument or change your beneficiaries. However, if you create a revocable living trust, you can change the terms your trust document or revoke the entire instrument. Although a revocable living trust is more flexible than an irrevocable living trust, you may be able to reduce your tax liabilities by creating an irrevocable trust. This is because the federal tax code considers a gift to an irrevocable living trust as property of the trust since you retain no control over its disposition. However, since you can change the disposition or beneficiary of a revocable living trust, you may not receive any tax benefits. Carefully considering tax implications is an important part of estate planning.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

The Internal Revenue Service (IRS) uses special tax rules for trusts. Understanding these tax rules is imperative for estate planning attorneys. According to the IRS, a trust established under state law must comply with the federal tax laws regarding tax liabilities of trusts. By creating a trust, the owner or grantor of the trust appoints a trustee to become a fiduciary of the trust instrument. A trustee retains legal ownership to administer the assets on behalf of the grantor for the benefit of the trust and its beneficiaries. The written trust document must clearly state the beneficiaries of the trust and appoint a trustee. A trust must also have trust property or assets within the trust. The IRS requires that all trustees or grantors file annual tax returns during tax years in which the trust includes at least $600 of trust assets or income and during each year a beneficiary named in the trust is a nonresident alien.

In limited situations, some trusts are never required to file tax returns. The trust tax return is IRS Form 1041, U.S. Income Tax Return for Estates and Trusts. Contrary to popular belief, an individual cannot impute his tax liabilities to a trust for federal income tax purposes. Because the IRS prohibits assignments of income, individuals are still liable for their income taxes even where their incomes go directly to their trusts.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

In the previous blog entry, we covered some of the common advantages to creating a revocable living trust. Now, we’ll cover some of the common disadvantages of creating one. Revocable living trusts are often expensive to create, but we can help you reduce some of these costs by carefully planning the details of your trust. Revocable living trusts may be expensive to administer. If you appoint a trust company or bank as your trustee, you will have to pay their administrative fees. If you appoint an individual as your trustee, you will probably still have to pay administrative fees to have this person administer and oversee your trust. Under Washington law, a trustee is entitled to receive reasonable compensation for his time. Furthermore, you’ll have to pay the trustee’s fees for maintaining the assets within your trust and reviewing your trust assets periodically. In addition to paying some administrative expenses, another common disadvantage is that you will have to make sure your trustee is qualified to protect your assets from creditors’ claims. There may also be some unforeseen issues that can arise with your revocable living trust, including title insurance and real estate ownership issues with property located in other jurisdictions.

There are many things to consider when deciding whether to create a revocable living trust. Generally, only skilled estate planning attorneys can help you decide whether creating a revocable living trust would be appropriate for your individual situation. You can contact our office today to schedule an appointment to discuss your estate planning goals.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

Your attorney can discuss the disadvantages and advantages associated with creating a revocable living trust to help you determine if creating one would be a good idea. As a broad overview of some of the common advantages associated with creating a revocable living trust, you can review this blog entry before you schedule an appointment with our office.

Some of the advantages of creating a revocable living trust include being able to avoid probate. Your trustee will be able to transfer your property more quickly than an executor would be able to pursuant to your written will. There is typically less delay or “lag-time” after your death before your trustee can transfer your trust assets to your trust beneficiaries. You may also be able to avoid potential probate proceedings in multiple jurisdictions if you own property in several states. Another advantage to creating a revocable living trust is privacy. Most likely, your trustee will not have to file your revocable living trust document in court. However, an executor would have to file your will in probate court, which becomes public record. If you select a trustee that normally took care of your financial affairs, your trustee would be able to continue doing so without interruption. Finally, if you are married, you may want to consider creating a revocable living trust to segregate your community or marital property from your general assets. You can use your revocable living trust to transfer your separate property without your spouse’s consent in most cases.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

To establish a revocable living trust, you will need to have your attorney draft a written trust agreement. Under Washington law, anyone who is mentally competent and at least 18 can create a revocable living trust. In limited cases, you may be able to create one if you are under 18 and legally emancipated or married. You will also need to appoint a trustee to administer your trust and transfer your trust property. Any mentally able adult who is at least 18 can serve as a trustee. You can also name a bank or trust company as your trustee. You can appoint multiple trustees as long as you give them written directions as to their responsibilities. Once you identify a trustee, it is generally a good idea to appoint an alternate trustee. This way, if your primary trustee is unable to serve or unwilling to serve as your trustee, your alternate trustee will be able to assume his duties.

Your attorney will then transfer all of your assets into your trust for the trustee to transfer to your beneficiaries at your death. You can transfer bank accounts, real property deeds, investment certificates and other assets that you would like to establish as part of your trust. A trust without trust assets is invalid to transfer your property. You must also properly fund your trust with property or assets. By contacting our office, we can help you ensure that you properly establish and fund your trust pursuant to Washington state law.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

We, often, get this question, “Do I have to list all of my assets if I have a living trust?”  Clients have terror in their eyes when they ask the question because they are not thinking of just bank accounts and life insurance, they are thinking about all of their stuff.  They are wondering if they have to list every television, phone, couch, sweater, Christmas decoration, and piece of cutlery.

While, typically, all assets are funded into a trust, you do not have to list all of your personal possessions.  Your skateboard, garden tools, IPad, and furniture (etc.) are all transferred into your living trust by using a “Bill of Sale.”

A bill of sale transfers all of your personal possessions (that don’t have a title – i.e. account name) from your individual name (or joint names with a spouse) into the name of your trust.  Each time you update your estate plan, your estate planning attorney will likely provide a new bill of sale to transfer all those assets you’ve acquired since the last time you signed one.

However, your estate planning attorney does need to know about high value personal property such as antiques, jewelry, art, and collections because these may affect your estate planning.

In contrast, you do need to list all of your assets that have a title (i.e. name) such as your house, vacation house, time-share, investment property, cars, bank accounts, retirement plans, life insurance, business interests, and investment accounts.  It’s appropriate to fund most, if not all, of these assets so your attorney needs to know about them and plan for them.

While you don’t have to list all of your personal property assets if you have a living trust, you do need to let your attorney know of high value items and provide a comprehensive list of real property, vehicles, and financial interests.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

Your will is used for only three things and health care instructions and burial arrangements are not included in those three things.

Your will only appoints guardians for minor children, if you have them; appoints a personal representative (i.e. executor); and, distributes your assets.  Nothing else.

Any health care instructions in a will are legally ineffective.  It’s as if they don’t exist.  Why?  Because your will is not effective until you die.  You need health care instructions while you’re alive.  Instead, place health care instructions in an advanced medical directive such as a medical power of attorney, living will, organ donation authorization, and HIPAA release.

Burial arrangements in wills tend not to work because such arrangements are made immediately after death; your will isn’t likely to be located and read until after you’re final arrangements are completed.  So, it will be too late and it won’t work.  Final arrangements should be written and placed with your other estate planning documents and other important papers.

The key to having an estate plan that works; having health care instructions that are honored; and, burial arrangements that are followed is communication.  Talk to your loved ones.

First, let your loved ones, verbally, know what you want and don’t want; then, second, put your wishes in writing; and, third, show your loved ones where you keep your important papers, including your health care documents and final arrangement wishes.

Remember, your will is only effective if you’re dead and it’s not usually read until after your final arrangements are complete.  Therefore, it’s necessary to put your wishes in other documents; and, communicate with your family so they know your wishes and know where to find your documents.

Consult with a qualified health care attorney to ensure that your health care wishes and final arrangement wishes are drafted as you wish, and drafted legally.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

A trust maker is the person who creates a trust.  The term “trustmaker” is, typically, associated with a revocable living trust; the terms, “grantor,” “settlor,” and “trustor,” are all used interchangeably with the term, “trustmaker.”

If you’re the trustmaker, you’re also probably the trustee and the beneficiary of the trust, as well.  The trustee holds title to the trust assets and is in charge of trust asset management and investment.  You maintain full control over your assets even if they’re funded into a revocable living trust.  In addition, you maintain full benefit of your assets as well; you are the beneficiary.

While it’s imperative that you fund your assets into your trust, you’ll likely forget that you are a trustmaker, trustee, and beneficiary.  Living trusts are easy to maintain and to administer.  You’ll likely only be reminded that you have a trust when you receive your financial and bank statements that are addressed to you as a trustee, not as an individual.

You file your income taxes just as you always have, using your social security number as the trust identification number.  Use the trust execution date (i.e. signing date) as its birthday.

As a trustmaker, it’s your job to ensure that your assets are funded into the name of your trust and that your trust is updated on regular basis, every three to five years.

This is what the title to your assets will look like if they’ve been funded:

Steven Jobs, trustee of the Steven Jobs Living Trust, and his successors in trust,

dated October 1, 2011. 

Or, if the computer fields can’t fit all of those words,

The Steven Jobs Living Trust, dated October 1, 2011

works as well.

Updating your trust is important; if you don’t, your estate plan may not work.  After all, think of all the changes that occur in your life, finances, family, goals, and outlook over the years.  There are that many changes in the law and in your attorney’s experience, as well.

If you have questions about what it’s like to be a trustmaker, consult a qualified estate planning attorney.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

A living trust, or revocable living trust, is a legal agreement created by someone doing comprehensive estate planning.  The trust holds the trustmaker’s assets and provides instruction and authority for successor trustees in the event the trustmaker becomes incapacitated or dies.

The trustmaker is also usually the trustee and beneficiary of the trust.  If it’s your trust, you created it, hold legal to the assets, and benefit from the assets.  If you want to include another trustee, such as a spouse, or other beneficiaries, such as a spouse and children, you are free to do so.

A living trust is effective immediately, so it’s effective when you’re alive and well.  If you become legally incapacitated, your trust continues to function.  In addition, the trust continues when you die and through trust settlement.  Most trusts contain provisions for beneficiary trust shares that are created upon the trustmaker’s death.

Some important trust facts to keep in mind:

• If you want your trust to work, consult with a qualified estate planning attorney.  The law is not an appropriate place for do-it-yourselfers.  The cost of your plan not working is likely higher than the cost of legal fees.
• Your trust, as part of your estate plan, must be updated.  Have your estate planning attorney review your estate plan every three to five years, sooner if you experience a significant life change.
• After you execute your trust, you must change the title of your assets to the name of your trust.  This is called “funding.”
• Your trustees are only authorized to manage assets that are funded into the trust.  Trust funding is just as important as creating the trust in the first place.
• Your trust will avoid probate for all the assets that you funded into the trust; if you die with assets in your individual name, probate is guaranteed.

If you are wondering whether a revocable living trust is right for you, consult with a qualified estate planning attorney.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.

If you have a revocable living trust, you may have heard of the terms, “funding” and “trust funding.”  “Funding” refers to the change of the title on your assets into the name of your trust.  When your assets are titled in the name of your trust, your trust is funded.

• For example, instead of your bank account being in the name of Paula and James White, JTWROS, your bank account name will be titled, “The Paula and James White Living Trust, dated December 31, 2011.  The date is the date the trust was signed.

“JTWROS” stands for “joint tenancy with right of survivorship” and it’s the way most married couples own their assets.  Joint tenancy is riddled with pitfalls so always consult with a qualified estate planning attorney to make sure you own your assets properly.  If you have a trust, put your assets into your trust.

• The trust assets for a single person would be titled something like this:  “The Joseph L. Thomas Living Trust, dated November 15, 2011” instead of “Joseph L. Thomas.”

How your assets are owned is a really big deal.  If you pay money for and take the time and effort to set up a revocable living trust, you might as well fund it.  After all, probate avoidance, one of the main goals of having a trust, is only achieved if your trust is fully funded.

If any assets are still in your individual name, probate is guaranteed.  Even if you own assets jointly with a spouse, probate is only avoided on the first death.  When the surviving spouse dies, owning assets in his or her individual name, probate is, again, guaranteed.

In addition, a second goal of revocable living trust planning is to avoid court interference through the guardianship or conservatorship process; it’s called “incapacity planning” and is only achieved if your trust is fully funded.  Your disability trustee only has authority over assets funded into the name of your trust.

If you have a revocable living trust and aren’t sure if your trust is fully funded, consult with a qualified estate planning attorney.

Byrd : Garrett, PLLC is a member of the American Academy of Estate Planning Attorneys.