This estate planning vehicle, which is sometimes also known as a bypass trust or a credit shelter trust, can save literally tens of thousands of dollars in taxes.

When one spouse dies, all his or her property goes tax-free to the surviving spouse, thanks to the marital deduction. Unfortunately, this transfer also means that the estate may be twice as large when the surviving spouse dies, and there is no marital deduction to avoid taxes. But if the couple has a family trust, the heirs would pay no estate tax, assuming that the corpus (property in the estate) is below the $2 million Washington State exemption. In some cases, due to federal portability laws, the no-estate-tax threshold can be as high as $10 million.

Some Key Benefits

In addition to the tax benefits, flexibility is usually the biggest advantage of a family trust. The settlor (person who creates the trust) and trustee can be the same person, meaning that the settlor can reserve all the trust’s income or just enough to pay medical bills and meet other obligations. Furthermore, the surviving spouse has the right to designate which of the possible beneficiaries receives property from the trust. Finally, if the deceased spouse’s will contained a disclaimer, the surviving spouse may have additional time to set up the family trust.

Like all trusts, the assets in family trusts do not pass through probate. That can be a significant advantage as well, because these proceedings can be very time-consuming and costly, especially if one spouse has been married before. Along those same lines, if there is no trust, the probate judge usually appoints a guardian to care for the affairs of surviving minor children. However, a trustee assumes that role, giving the family more control over the situation.

Some Things to Remember

Family trusts are highly technical. The document must clearly state that it is intended to set up a trust, name all beneficiaries individually, designate a trustee who is a Washington State resident (the trustee can be a natural person or a company), and include detailed instructions regarding asset distribution.

The trust itself does not change title to property. So, cash must be moved to a separate family trust account, vehicles must be retitled, and so on. In most cases, such title must belong to a natural person, so if the trustee is a company, the firm usually designates a person to fill this role.

Connect With an Experienced Attorney

A properly-executed family trust has significant benefits. For a confidential consultation with an experienced estate planning lawyer in Kent, contact the Law Offices of Dan Kellogg PLLC. We routinely handle matters in King County and nearby jurisdictions.