REVOCABLE -VS-

IRREVOCALBE TRUSTS

Trusts can be a valuable tool in estate planning and asset protection. However, they do have potential tax filing requirements and other back-end costs. When adding complication to your financial life and estate plan, it's important that there is a net benefit from the added complexity. Living revocable trusts are commonly misunderstood in terms of the asset protection and estate planning value they actually provide.

For clients with expected taxable estates to be less than the Washington state estate tax exemption amount, currently at $3,076,000 as of 2026, trusts may not be needed for estate tax avoidance. Commonly, living revocable trusts do not remove assets from your taxable estate. And therefore are not accomplishing estate tax avoidance.

Further, living revocable trusts become irrevocable upon the death of the grantor - the person who established the trust. At that point, an annual tax filing requirement begins for that trust. In some cases, this is an unnecessary cost and complication for beneficiaries. When simply naming individual beneficiaires on financial assets and recording transfer on death deeds for real estate can satisfy the goals of an estate plan.

If you do have a living revocable trust, ensuring assets are titled in the trust are necessary to avoid probate of assets to distribute to beneficiaries. Any asset not titled in the name of the trust will have to go through probate if beneficiaries are not named on the asset. This is where a thorough roadmap is needed. Some assets are perfect for holding in a trust. Often times, homes are good to hold in trusts. However some assets are not right for trusts. In example, retirement accounts, such as IRA's, which generally cannot be held by trusts during the account owner's lifetime, should have individual beneficiaries named as opposed to a trust named as beneficiary. This is because when a trust inherits an IRA from someone who has already began their RMD's (required minimum distributions) the trust must not only take annual RMD's but also must liquidate the IRA in full in five years. As opposed to ten years for an individual beneficiary. Double the time to take taxable distributions can result in substantially lower taxes owed from inheriting the IRA.  

When estate tax avoidance is needed, bypass trusts established under will can be a powerful tool for spouses. For single individuals, gifting assets to beneficiaries during lifetime can be the simplest solve. Otherwise, irrevocable trusts are required to remove assets from your taxable estate. Anything done irrevocably however, should be done with great care and understood foresight.

Irrevocable trusts can be an effective tool to remove assets from your taxable estate. They can also provide a way to guide and control distributions of assets over time to beneficiaries. Particulalry useful when there are concerns of beneficiaries' abilities to manage finances. It is critical to understand the loss of control from transferring assets into irrevocable trusts. In example, although it is possible to remain the trustee - the person in control of the trust's assets - treating the assets as your own by using the assets or distributing income from the trust to yourself, may void the IRS' excluding the trust's assets from your taxable estate. Meaning, it was all for nothing in terms of avoiding estate taxes.