Probate v. Revocable Living Trusts

People in need of estate planning regularly come into my office and say,“We need to set up a revocable living trust.”  

When I ask why, their response is generally along the lines of “Because we want to avoid having to go through probate.”  Again…I ask “Why?” The responding expression to this question seems to wonder “Isn’t that the whole purpose of estate planning? Isn’t that what we’re supposed to do?”  

Many of us have been told by friends, family, the Internet, and even attorneys that probate proceedings should be avoided like the plague.  While that may be true in some states (I’m looking at you California), a quick overview of the probate process shows that it couldn’t be farther from the truth in Washington State.  

What is Probate?

Probate is the legal process by which a will is deemed authentic and valid and someone is appointed by the court to administer the estate of someone who has died. The estate administrator is known as the Personal Representative for the estate (also referred to as an executor/executrix). The Personal Representative (“PR”), once appointed by the court, begins the process of transferring and selling assets in accordance with the will’s instructions, valuates assets, manages creditor claims, and ensures that taxes are paid.  

Should Probate be Avoided?

Most people are concerned that probate will be an extremely expensive and drawn out process.  As mentioned previously, in some states it can be.  However, Washington State has created one of the most efficient and least expensive probate systems in the country.  This is, in part, the result of a streamlined appointment process for the PR.  In many counties, Chelan and Douglas included, a solvent estate (assets exceed liabilities) can have its PR appointed by simply mailing a series of short pleadings to the judge for review and signature without the need for a court hearing.  

Similarly, when authorized by the will, a PR is given non-intervention powers once appointed (if your will does not grant non-intervention powers…you likely need a new one).  This allows the PR to administer all of the affairs of the estate without any court intervention so long as the estate is solvent.  These powers substantially reduce the administrative costs on the estate by potentially eliminating the need for court hearings.  The probate process also provides PRs with important tools to help limit and manage creditors’ influence on the estate.

Does this mean that all probates are inexpensive and brief?  Definitely not.  Conflicts between estate beneficiaries, complicated assets requiring specialized valuation procedures and unexpected creditor claims can draw out the process and increase costs.  However, these types of costs are inevitable regardless of whether you go through probate or use a revocable living trust.

Do I Really Want a Revocable Living Trust?

Revocable living trusts require the person(s) creating the trust (the “Trustors”) to transfer their assets into the trust and appoint themselves as trustee to manage the assets.  While these trusts allow assets to be transferred to beneficiaries, identical to a will, without the need of conducting a probate, the perceived cost savings of a living trust are generally a myth.  Living trusts are often more complex to draft and require up-front costs to transfer assets into the trust.  

On the back end, when it comes time to distribute assets to beneficiaries, successor trustees still need assistance from attorneys and accountants and incur additional administrative costs identical to those incurred during a probate.  In total, there is generally not a significant difference in total cost between trust administration and probates.  

Additionally, revocable living trusts do not offer asset protection from creditors, impose additional legal obligations on trustees, can be inconvenient to administer, and can create issues with title insurance, stock ownership, and refinancing on your home.  

When Should I Have a Revocable Living Trust?

There are still plenty of good reasons to use a revocable living trust, including the following:

  1. Real Property in Multiple States (most common)
    If you own a home or land in multiple states, you will certainly want to consider using a revocable living trust.  Leaving out of state property in your name will require your children/beneficiaries to open probate proceedings in each state where you own property to sell or transfer it.  Administering multiple probates at the same time often negates the cost savings from Washington’s beneficial probate process.
  2. Privacy
    Probating a will requires you to file the original will with the court, technically making it a matter of public record.  People who are concerned about people viewing the specific distribution provisions of their wills can use a living trust to help prevent public access.
  3. Potential Incapacity
    Trusts can sometimes assist in managing the financial affairs of someone who is incapacitated without the need for guardianship proceedings.
  4. Second Marriages
    In some circumstances couples with substantial separate property assets can use living trusts to manage and ultimately distribute these assets in lieu of a prenuptial agreement.
  5. Probate Avoidance 
    You may just decide that you don’t want to get involved with probate as a matter of preference.  Just remember that it doesn’t guarantee that your trust will cost you any less in the end.  

Ultimately the question when it comes to your estate plan should never be, “How do I avoid probate?” Instead it should be “How do I want my assets to be distributed when I die, and what is the best vehicle to accomplish that?”  Surprising to many, the answer to that question often involves a probate.  

Bryce J.  Mackay is an associate attorney with the Wenatchee law firm of Jeffers, Danielson, Sonn & Aylward, P.S.