By: Matt Luedke
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3 Reasons for Changing a Trust When Moving to Washington
With the influx of people moving to Washington State from California, many folks have questions about whether they should revoke their original trust to establish a new trust in their new state of residence (Washington State). California statutory trustee powers, trustee authorities, and trust administration rules should continue to apply to all trusts created in California, except in cases where the trust document provides otherwise – but we do recommend you consult with an attorney to verify this is the case for your situation.
What Happens to a Trust When a California Resident leaves?
A trust is almost always administered wherever the trustee resides. The laws of the original state where the trust was created would usually continue to apply to issues of interpretation and validity. The laws of the second state (Washington) where the trustee now resides would apply should the trustee ever use the state’s courts concerning administrative matters, such as the trustee’s duties to the beneficiaries or the rights of the beneficiaries under state law. That said, States take different views on what administration matters are versus matters of performance or fact. Most people would probably prefer not to have to attend a courtroom proceeding in their former state of residence, and for that reason alone, it may make sense to update your trust to your new jurisdiction.
1. Estate Planning Cost Differences
Sometimes, it makes sense to create a new trust in your new state. For example, if you reside in one state but own property in another (or plan to own property), you’ll want to ensure that your trust is up-to-date. While living trusts are much less costly than their traditional counterparts, they’re still not free; depending on where you live and where you purchase your living trust, they can cost as much as $1,000 or more. Some states have no transfer tax (such as Alaska), while others may charge hundreds of dollars to register your living trust with its secretary of state. We highly recommend that you consult with an estate planning attorney if you have any doubts whatsoever about these costs.
The probate process can vary based on where your trust is established and whether it’s revocable or irrevocable. For example, some states have smaller probate fees than others. If you move to a state with more modest prices, it may be worth it to revoke your original trust and establish a new one that’s subject to your new state’s laws and costs. However, if you prefer not to pay higher attorney’s fees or set up a separate trust just for probate purposes, there are still ways you can avoid having your living trust go through probate in your new home state.
2. Different Estate Tax Rules Between States
California residents also may not be aware that they’re effectively moving from one estate tax system to another when they move to a different state like Washington. Every state has its own set of rules regarding how much of an estate is taxed and deductible. For example, some states only tax estates worth over $1 million, while others don’t have an estate tax at all. When you move to a new state, your best bet is to contact an attorney for advice on what you can do to reduce your taxes after passing away.
3. Out-of-State Administration Laws Can Differ
One of the most critical issues you’ll face is how to handle your trust administration in a new state. You can choose to leave your trust in place. It may be possible for an out-of-state representative—such as a friend or relative who has no personal interest in probate and its proceedings—to manage it without making any changes or modifications to its terms. However, the problem with leaving your trust unmodified is that nothing stops that person from transferring assets outside of California’s jurisdiction and taking advantage of both estate and inheritance tax benefits for which they are not eligible. In short, it would be easier for them to loot your trust than it would be if you had already revoked it.
Is it Always a Good Idea to Change a Trust?
Not always. It might not be suitable if significant actual property holdings or legal issues continued in the first state. Also, there may be asset protection and tax differences between the states’ laws that require consideration. For example, consider a person moving from California to Washington, a community property state, who keeps a home in California but has death beneficiaries in California. Depending on their exact circumstances, the settlor might add the new assets acquired in Washington to the California trust or establish a separate trust under Washington State law. An experienced estate planning attorney can help you make the best determination for your unique circumstances.
What If I Am Unsure of The Best Course of Action after Moving from California to Washington?
We highly recommend that anyone who recently moved to Washington State from California attend one of our FREE Living Trust Seminars. Doing so will help you fully understand the Washington State rules and regulations and allow you to ask questions of our veteran estate planning professionals. At the end of our seminar, please feel free to approach us and ask questions (or schedule a consultation if you need more time) so we can help you decide the right course of action for your family!
If you’d like to view the specific legal documentation for Washington State’s laws concerning Trusts, you can view the RCW’s on our state website. As these are fairly complicated laws, we highly recommend you obtain guidance from our attorneys in the event you find this information difficult to understand.