Lately, I’m seeing a number of new clients who have done their estate planning with some other law firm, and, as a part of their planning, a revocable grantor living trust has been utilized for the client.
I’ll always ask the client (and of course I already know the answer!), “Why did you set up a living trust?” The answer is ALWAYS, “To avoid probate, of course!” Usually, the wife, laughingly, will say, “I don’t want to die first, and some floozy gets ahold of Charlie, who already is getting forgetful, and will then get talked into a new estate plan with the second wife (or girlfriend), and our estate ends up going to HER children to the exclusion of our children.”
However, back to “We set up a living trust to avoid probate!” Then I ask, “Did you ask the attorney, what is probate? Did the attorney fully explain it to you?”
I have a very extensive probate practice. Probate in Washington and Idaho is VERY streamlined. Especially since COVID, we’ve learned that probably more than 90% of probates are extremely simple and can be handled fully online if the client wishes. There is NO going to court as a requirement of initiating a probate proceeding.
Typically, the sole function of probate (in the author’s opinion) is to get the person who is named as the personal representative in your will admitted by the court as the appointed personal representative, or PR, in charge of probate proceedings. This then allows your PR to be able to sign your name to a bank account or a brokerage account solely in your name, on a deed for example, to convey title from the decedent’s name to the heir, etc. If your estate is substantial enough to have estate tax reporting issues, for example, a living trust doesn’t make such matters any easier. Whether it’s your PR of your estate or trustee of your trust handling such matters, the work required with larger estates is typically the same.
Probably the single BIGGEST thing that irks me about a typical living trust is, again, the idea is that you won’t have to probate your will. But it almost always ends up there is some asset in the decedent’s name that didn’t get transferred to the living trust. The asset, such as a bank account, a parcel of real property missed, etc,. that ends up, when you die, STILL in your name, and NOW requires that the will be filed, and probate initiated to get the named PR appointed!
The will you signed as part of your living trust plan is called a “pour over” will. Read it, so when the will is admitted to probate, that allows the PR to then convey the missed asset to your trustee/trust for disposition pursuant to the trust.
If you are “sold” on a revocable living trust, do you know what happens when the first spouse dies? I’ll bet dollars to donuts you don’t! Read the dispositive provisions of your trust. Attorneys draft revocable living trusts differently, TRUST ME! Your trust might, for example, provide:
- That the whole estate, i.e. decedent’s half and survivor’s half, are “locked” up — they can’t be changed, even as to the surviving spouse as to his/her half (that may be exactly what you want).
- Does the first deceased spouse’s half get allocated to a decedent’s trust (or some other terminology)? This is a typical trust provision. Does your estate warrant that planning? You may have a simple estate having a few hundred thousand dollars in savings, a car, and a home. Do you need/want the complication for the surviving spouse of a “forced” decedent’s trust to divide the estate? Maybe not?
- Does the decedent’s trust contain a limited power of appointment for the surviving spouse to be able to later change by testamentary disposition (in his/her will) how the decedent’s trust ultimately goes? Assuming you trust your spouse, you’ll want this flexibility. How many times, say 10 years after dad has died, do I hear from the wife the story of one child on drugs, in a bad marriage, etc., all good reasons why the surviving spouse maybe should have the power to reallocate the trust remainder amongst the children/grandchildren.
- Lately, I’m seeing a particular living trust plan that is insidious, as far as I’m concerned, and I’ll guarantee the client didn’t understand. The client thought they had a living trust to avoid probate, but the trust they signed says that the first deceased spouse’s half actually “passes back” to the probate estate of the first deceased spouse, so we have to open a probate! Then, the trust says that the first deceased spouse’s half will be distributed pursuant to the will and goes into a forced special needs trust. Sounds good, but was all that discussed and understood?
I am not against revocable living trusts! I have probably thousands of such trusts in use in my practice, but hopefully for specific reasons understood by the client. Such examples include:
- A revocable living trust to hold title to out-of-state real property, i.e. the Idaho lake property, the Montana ranch, etc., to avoid a dual or ancillary probate in the foreign state.
- I use such trusts in conjunction with most gifting to children, especially if giving LLC units or corporate shares of the family’s closely held entities.
- I will use a trust for mom, who is getting some dementia, and not handling her business efficiently, etc.
- We design trusts to hold gifting/inheritances for the “problem” child/grandchild.
These are just some of the examples of uses of revocable living trusts. I am intentionally not dealing with irrevocable trusts, which are a whole other topic to itself.
Bottom line, most folks don’t have the concerns/issues addressed in the article. They want the simplest estate plan they can have, all to each other, then the kids! If a revocable living trust is part of your estate plan, just be sure you understand it!
Norm Brock has been representing farm families throughout Eastern Washington, Idaho, and Northwestern Oregon for more than 50 years. He works out of the firm’s Davenport and Spokane offices and can be reached at (509) 721-0392 or brocklf.com.
