Do you need a living trust? The short answer is probably not. For those who promote the use of living trusts, the general logic is that this is the single, best document that will help you avoid costly probate proceedings when passing assets to your heirs. And while this technically may be true, in most cases there are easier, less expensive ways to avoid probate.
Now with any probate avoidance strategy, it’s important to remember that in Washington state, probate does not need to be as awful as many people believe it to be. With that said, here are several ways to avoid probate without a Living Trust and a few times when a Living Trust may be helpful.
- Joint Tenancy Assets Pass Directly to the Survivor
Property that you jointly own with right of survivorship will automatically pass to the survivor upon your death. For example, no probate will be involved with major jointly-owned assets like your primary residence.
- Assets With Named Beneficiaries Also Avoid Probate
Pensions, retirement accounts and life insurance policies offer you the opportunity to name a beneficiary. As long as you name an individual(s) as beneficiary, these kinds of accounts and assets will also avoid probate and pass directly to your named beneficiaries.
- Bank Accounts Avoid Probate With Payable on Death Designation
Your bank accounts can also easily be moved outside of the probate process by setting them up as payable-on-death accounts. Designating them as such grants your designated heir immediate access to the accounts when you pass away.
When Living Trusts Make Sense
There are some situations when it does make sense to put a living trust in place. These include:
- If you have out of state real property holdings and want to avoid probate in that state.
- If you own a small business and want to have the best chance of quickly passing along your business interests and minimize the chances of business disruption.
Some Things You Can’t Avoid
Regardless of whether you avoid the probate process by contract – joint tenancy, payable on death designation, named beneficiaries – or by use of a Living Trust, remember that you cannot avoid creditors simply because you don’t go to probate court. A deceased individual’s creditors must still be paid. Also, don’t think that because your estate won’t go through probate that there will be no fighting among beneficiaries. That can and does still happen. A trust can be challenged just as a Will. The success or failure of the challenge depends on the circumstances.
No Help With Medicaid
If you or your spouse are in need of Medicaid to assist with the cost of long term care, having assets in a Living Trust (that is a standard revocable living trust) will not help you. In fact in some states, including Washington, it can actually hurt you. You should definitely discuss these issues with a qualified estate planning or elder law attorney.
Don’t Make a Big Mess
Keep in mind also that using contractual ways to avoid probate may frustrate your overall estate plan. If you are planning to apply for long term care, beneficiary designations and jointly owned property could be a recipe for disaster. You may create a Will designating property to pass in the proper manner, but find that Will has been overridden by your various contracts with banks and other entities.
Even if you don’t need to plan for long term care, if you have a taxable estate, want to protect against a future remarriage or have children who need a trust in place for whatever reason, all of those planning goals will be frustrated by a short sited desire to avoid probate. You should not miss the forest for the trees.
If you are in any way unsure about how your estate is set up, talk with a qualify attorney promptly.