Eslinger Law Office

As an estate planning attorney, I’m asked almost weekly by clients whether they need a living trust.  In the majority of cases, after evaluating their particular circumstances, my conclusion was that they do not need a living trust.  I believe for most Washington residents, a living trust is unnecessary because it’s much more costly than a Will and it’s burdensome. Before I explain in detail later on in this article my reasons for the above stated conclusion, let me provide an except from a Washington Court of Appeals case ruled in August, 2022, that supports my conclusion. The case title is CLA Estate Services v. State Of Washington.  The Court of Appeals rules: “CLA Estate Services, Inc. … began offering free estate-planning seminars for seniors in Washington in 2008. These seminars stressed to consumers that ‘Revocable Living Trusts’ (RLTs) were a superior means of estate distribution relative to probate…The Office of the Attorney General (AGO) sued CLA for violations of the Consumer Protection Act…the [lower] court concluded that CLA unlawfully misrepresented the benefits of RLTs compared to probate,…the presentations and workbooks at CLA’s seminar gave the deceptive net impression ‘that a revocable trust is preferable regardless of individual circumstances.’ The [lower] court found that the workbook gives the impression that wills lead to ‘WORRY,’ while trusts lead to ‘PEACE OF MIND,’ based on the workbook’s representation that wills are subject to court control, are public, take a long time to resolve, and leave families vulnerable, while trusts avoid all these issues. The [lower] court found that this impression was deceptive because it ‘misrepresents Washington law, the Washington probate process, and the relative benefits of revocable living trusts in Washington.’  As discussed above, these findings are supported by substantial evidence. We therefore hold that the [lower] court correctly concluded that this practice on CLA’s part was deceptive.”

Who Needs a Living Trust?  One should only want a trust if the benefits far outweigh the burden.   Whether a person needs a living trust depends on the individual’s specific circumstances.  For most people with assets in Washington State and not in other states, a living trust is unnecessary, costly and burdensome.   Rather, a “testamentary trust” is a far better option than a “living trust.”  A trust comes in many forms.  A testamentary trust is embedded in the Last Will and there’s no management involved during the trustor’s life time.

However, if a Washington resident owns real estate in another State, especially one that has onerous and costly probate process, then creating a living trust and transferring the out-of-state real estate into the living trust to avoid probate in the multiple states is a good option [WA probate court cannot probate real estate located in another state].   

When I ask a client why they want a living trust, most would say that they don’t know except that they read online that a living trust is good.  Many clients say that they want a living trust to avoid probate although they don’t generally know why avoiding probate is important.  It’s true that a living trust avoids probate as long as the assets have been transferred into the living trust but we only want to avoid probate if we live in a state with onerous and expansive probate process. Washington State has a streamline probate process so that avoiding probate is generally not necessary.  

How Does a Living Trust Avoid Probate?

The probate process is a court process administered in the state where a deceased person’s assets are located.  When a person dies, the estate generally is composed of “probate assets” and “non-probate assets.”  An example of a probate asset is real estate.  When an owner of a real estate dies, the decedent’s interest in the real estate freezes and only an executor appointed by the probate court has the authority to buy/sell or otherwise manage the real estate.  On the other hand, if prior to death, the decedent created a living trust, and transfer the real estate (and/or other assets) into the living trust, then the trustee named in the trust can continue to manage the real estate (and the other assets) without involving the probate court.  This is not as simple as it’s being stated here. The cost of creating a living trust is high.  After creating the living trust, there’s additional costs to transfer assets into the trust.  With real estate, one must hire an attorney to create a deed and pay recording fee as well.  If the owner of the real estate wants to refinance it, most lenders require that the title be transferred out of the living trust to an individual.  If after the refinancing, one fails to transfer the title back into the trust, then the trust fails, and probate is required after the owner dies.  Moreover, even if one is able to avoid probate, most people don’t know how to carry out their responsibilities as a trustee or how to manage a trust, so that the trustee needs to hire an attorney even without the probate requirement.  In the end, even though probate cost is avoided, the trustee will incur attorney fees assisting in handling the trust assets.

Is Probate Avoidance Important?

It depends.  The probate process is a court process administered in the state where a deceased person’s assets are located.   This is governed by state law so it depends on the state.  In Washington State, the probate process is very efficient, both in cost and time so that if one compares the time and costs of managing a living trust or going through probate, the probate process is generally more efficient and cost effective than managing a living trust. Therefore, for clients whose assets are located in Washington State, a living trust could be more burdensome than probate so that a Will-centered estate plan may be better than a Living Trust-centered estate plan.

How About Creating a Trust to Avoid Taxes?

It depends on what types of taxes we are talking about (estate tax, income tax, gift tax???). Most tax planning that is done in a living trust can be done in a Will. There are very limited ways one can legitimately avoid taxes by transferring assets into a living trust. Beware of companies that promote trust packages to avoid taxes. Here’s a link to an IRS article about abusive trusts that can land a taxpayer in serious trouble: https://www.irs.gov/businesses/small-businesses-self-employed/abusive-trust-tax-evasion-schemes-talking-points

Both Washington State and the Federal government impose an Estate Tax on a deceased person’s estate.  According to the IRS’s website: “The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706). The total of all of these items is your “Gross Estate.” The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets…”   

Each US resident is given an estate tax exemption, an allowance below which estate tax is exempt. For 2025, the Federal estate tax exemption is $13,990,000 ($10,000,000 + inflation). A decedent’s gross estate above this exemption is taxed at 40%. In contrast, Washington State’s estate tax exemption is $3,000,000 beginning July 1, 2025 (with inflation index added beginning Jan. 1, 2026). A Washington resident’s gross estate over this exemption amount is taxed at a graduated rate of between 10 to 35%.  

The estate tax does not apply to a decedent for the portion of the gross estate that is given to a U.S. citizen spouse. However, if the deceased spouse’s estate is left to the surviving spouse outright, without tax provisions to preserve the deceased spouse’s WA estate tax exemption, the surviving spouse will only be left with one estate tax exemption, even though her estate has inherited the deceased spouse’s assets (the Federal government allows the deceased spouse’s unused exemption to be transferred to the surviving spouse (known as portability); Washington does not).  In such case, the surviving spouse’s estate will be liable for estate tax if her gross estate, which now includes the amount she inherited from the husband’s estate, exceeds the WA estate tax exemption.

The good news is…there is a way to preserve the deceased spouse’s estate tax exemption to double the estate tax exemption upon the death of the second spouse.  Moreover, all of the growth generated from the first spouse’s estate up to the exemption amount from the day the husband passed away to the death of the wife is exempt from estate tax.  However, to qualify for the double exemption, certain IRS code provisions (“Marital Trust Provisions”) must be drafted into the living trust. 

The step that we recommend is efficient.  By including Disclaimer/Marital Trust Provisions in the living trust, the surviving spouse will be able to decide (after the death of the first spouse) whether to inherit the husband’s estate outright because there is no estate tax liability due to the then current tax code; or to implement the tax planning mechanism to preserve the first deceased spouse’s estate tax exemption.  If the latter option is chosen, the Disclaimer/Marital Trust must be activated within 9 months of the first spouse’s death and notice given to the Treasury. 

To accomplish this, Disclaimer/Marital Trust Provisions must be drafted in the Living Trust in accordance with the IRS code.  The provisions must state the following:

As a practical matter, because the assets in the Disclaimer/Marital trust, including any growth, is exempt from estate tax while the surviving spouse’s estate above 3 million dollars is subject to estate tax, one of the surviving spouse’s goals should be to let the Disclaimer/Marital Trust grow as much as possible while keeping her own estate to within the estate tax exemption limit.   Let me illustrate:

Husband (“H”) and Wife (“W”) are WA residents. They have $6 millions of assets.  Upon H’s passing, H and W’s estates are each valued at $3 million each.  Anticipating that she would not need more than 4 million dollars and hoping to minimize estate tax, upon H’s death, W disclaims $2 million of H’s assets to fund the Disclaimer/Marital Trust.  W now has $4 million of assets and the trust has $2 million of assets.   Even though wife has the right to use assets in the trust to pay bills under the MESH standard (maintenance, education, support & health), it may not be the right thing to do.  If she does, she will be spending trust assets while her own estate of 4 million dollars will continue to grow.  Let’s say on her death, the trust’s assets are reduced to $1,500,000 (whatever the amount, it’s tax exempt), while W’s estate grew to $4.5 million.  W’s estate of over $3 million is subject to estate tax, whereas the trust assets are exempt from estate tax, no matter the value. 

Instead, W should use her own assets until she spends down her estate from 4 million to 3 million dollars. Thereafter, if she wants to start using the trust assets, that’s fine.  Upon her death, let’s assume W’s estate is worth 3 million dollars.  The trust assets grew to 3.5 million which is exempt from estate tax.  The total of assets of 6.5 million dollars will pass to the children or others, without estate tax liability.