This information was prepared as a public service by Mullavey, Prout, Grenley & Foe LLP. It contains general information and is not intended to apply to any specific situation. The information is very broadly and simply stated. There are a number of exceptions and specific rules that apply to your particular situation and lead to a different result. If you need legal advice or have questions, you should consult a lawyer.
There are two basic types of trusts: revocable trusts and irrevocable trusts. Revocable trusts are those that the creator (the Trustor) can revoke or eliminate during his or her lifetime. Irrevocable trusts are fixed in nature and cannot be revoked by the Trustor once funded.
Likely your friend is referring to a Revocable Living Trust. A Revocable Living Trust is an estate planning tool that some people use to attempt to avoid probate. It is a trust that you create and use during your lifetime. You can use the trust to hold your property. You have the power to revoke (get rid of) the trust at any time. The property placed into the trust during your lifetime will not need to go through the probate process, it will instead go through a trust settlement process upon your death. If any of your property is held in your name at the time of your death, a probate may still be necessary to transfer that property.
No. No estate planning tool is right for everyone. You need to consult with an attorney to determine whether a Revocable Living Trust is appropriate in your situation or if a different estate planning tool is more appropriate.
Maybe. It depends on why you formed the trust and the type of assets you have. Some people form Revocable Living Trusts to hold only out-of-state assets like a vacation house. Others form Revocable Living Trusts to hold the majority of their assets. If your intent is to avoid probate, it is likely that all of your assets that would normally go through probate should be held in the name of your trust (e.g. those without beneficiary designations). However, there are certain exceptions to this. You should consult with an attorney to determine which of your assets should be held in the name of your trust.
Yes. If you have a Revocable Living Trust you will also need to have a Will. If you intend for all of your property to be distributed through your Living Trust, you will execute a Will that is commonly referred to as a Pour Over Will. The Pour Over Will funnels any property that you happen to own outright at your death and that does not have a beneficiary designation into your trust.
Yes. The first step you will need to take is to properly fund the trust. Depending on the scope of your trust, you will need to transfer into the trust the property you intend to pass through the trust. After its initial funding, you will need to maintain the trust. This includes making sure that when you sell trust assets you keep the funds from the sale in the name of the trust and making sure that any additional assets you buy (e.g. real property, car, boat) or any new accounts you set up are set up in the name of the trust if you intend for that property to pass through the trust at your death.
There are many different kinds of irrevocable trusts. An irrevocable trust can be a stand-alone trust, such as an Irrevocable Life Insurance Trust, a Revocable Living Trust where one (or both) of the Trustors has died, or a Testamentary Trust included in the Will of someone who has died. Some examples of a Testamentary Trust are: Standard Credit Trust (Bypass Trust), Disclaimer Credit Trust, Washington State Marital Trust, Qualified Terminable Interest Property Trust (QTIP), Qualified Domestic Trust (QDOT), Children's Trust, Grandchildren's Trust, Spendthrift Trust, and Special Needs Trust. The one thing that all of these different types of trusts have in common is that once they become irrevocable the Trustor cannot just revoke or eliminate the trust.
Different types of irrevocable trusts are funded at different points. Testamentary Trusts are funded when the creator of the trust (the Trustor) dies. Irrevocable (Life Insurance) Trusts are funded shortly after their creation, while the Trustor is still living. Revocable Living Trusts are also funded shortly after their creation, while the Trustor is still living and the trust is still revocable. A Revocable Living Trust transforms from a revocable trust to an irrevocable trust(s) when one or more of the trustors die. In the case of a Revocable Living Trust created by a married couple, the trust may split in half at the death of the first spouse. If that occurs, the deceased spouse's share of the trust will become irrevocable. The surviving spouse's half generally remains revocable until the second spouse dies, and then it too becomes irrevocable.
Yes. Once an irrevocable trust is funded, Washington law provides specific steps the Trustee must follow. The Washington Trust Act, which took effect on January 1, 2012, and was later amended on July 28, 2013, contains important provisions that apply to irrevocable trusts. Trustees must comply with the Washington Trust Act, regardless of when the trust was created or of when it became irrevocable. In many cases, the Trustee is required to provide notice of the trust's existence to the trust beneficiaries. In addition, the Trustee is required to keep all trust beneficiaries "reasonably informed" of trust activities. This accounting requirement is present even if the trust document specifically states that a Trustee shall not be required to provide any information to trust beneficiaries.
If you are a Trustee or beneficiary of an irrevocable trust, please contact our office if you would like help ensuring compliance with all provisions of the Washington Trust Act. Below is general information about the Washington Trust Act's accounting requirements. Since every situation is different, please contact us if you have any questions regarding your particular situation.
If a Trustee does not comply with the provisions (including the accounting requirement) of the Washington Trust Act, the Trustee may be in breach of his or her fiduciary duty. This could lead to a claim against the Trustee for such breach and in some cases may lead to such things as the Trustee being individually responsible for paying damages to the trust and/or its beneficiaries and/or removal of the Trustee.
The Washington Trust Act requires all Trustees provide each "permissible distribute" with a written itemized statement of all current receipts and disbursements made by the Trustee of the funds of the trust, both principal and income, at least annually. The act defines permissible distributee to include any trust beneficiary to who is currently entitled to receive distributions of income or principal whether the distribution is mandatory or discretionary. However, this requirement may be waived in the trust document.
In addition, the Washington Trust Act requires that the Trustee must keep all QUALIFIED BENEFICIARIES "reasonably informed" about the material facts necessary for them to protect their interests. Accountings are the easiest way to make sure that a beneficiary is reasonably informed. The phrase "qualified beneficiaries" would include the current (income) beneficiaries of the trust, as well as all contingent beneficiaries of the trust (those who may receive the property after the death of the income beneficiary). The Trustor cannot waive the "reasonably informed" requirement in the trust document.The Washington Trust Act does not define how often accountings need to be provided. It is likely that in most trusts an annual accounting will fulfill the requirements of the Washington Trust Act, but that will need to be determined on a case by case basis for each trust.
The Washington Trust Act imposes a statute of limitations on beneficiaries who wish to contest a Trustee's actions. Prior to the Washington Trust Act, the statute of limitations on Trustee actions did not begin to run until the trust was dissolved, the Trustee ceased to serve as such, or the Trustee went through the steps to file an accounting with the court and obtain court approval of the same. The Washington Trust Act provides for a three-year statute of limitations on beneficiaries contesting a Trustee's action that are disclosed to a beneficiary in an accounting. The three-year period starts to run on the date an accounting statement is received by the beneficiary.
Even with the three-year statute of limitation, a Trustee still has the option of seeking court approval of his/her accounting. Court approval has several benefits over the minimum accounting requirements of the act including: (1) it severely limits the time a beneficiary has to contest the Trustee's actions; (2) a beneficiary must file appropriate responses with the court in order to contest the accounting; and (3)if a beneficiary does not appeal the court's order approving the accounting, the beneficiary's contest is barred.
Chapter 11.98 RCW sets forth a process for trust distribution. Under the chapter the Trustee may send a notice of proposed distribution to all trust beneficiaries via certified mail or personal service. Any beneficiary who does not object to the proposed distribution within 30 days of it being sent waives any objection he/she may have thereto. Hence, before you make any unusual or final distributions from the Trust, you should contact your attorney for assistance with preparation and service of a notice of proposed distribution.
2015 Mullavey, Prout, Grenley & Foe, LLP