Washington Estate Planning - Passing Property Through Will Substitutes
Will Substitutes in GeneralWill substitutes benefit both testators and beneficiaries by simplifying the disposition of a testator's estates and avoiding the formalities of will execution required by the Statutes of Wills. They enable beneficiaries to avoid the delays and costs of probate, protect the assets from attachment by estate creditors, and avoid delays in beneficiaries' receipt of title and possession of the property. While the disposition of probate assets can entail a complicated process taking up to one year, beneficiaries
generally receive nonprobate property shortly after the decedent's death.
Assets transferred through will substitutes do not become part of the testator's probate estate. Generally, probate courts do not have jurisdiction over nonprobate transfers. However, individuals using will substitutes should not assume the property passes completely free of probate procedures.
Will substitues in probateo Revocation of the designation of a former spouse as a beneficiary (RCW
o Rules of abatement (RCW ?11.10.040);
Washington probate law impacts the transfer of nonprobate assets at several junctures (in some sense makes non-probate assets subject to probate):
o Creditors' claims, including notice requirements (RCW ?11.18.200);
o Notice requirements to beneficiaries or transferees (RCW ?11.28.237);
o Administration by the personal representative (RCW ?11.48.010); and
o Inclusion in the determination of estate solvency and the availability of
nonintervention powers (RCW ?11.68.011).
Substitue 1 - Revocable Living Trusts (RLTs)RLTs are the most flexible will substitutes because a donor has the ability to draft the dispositive and administrative provisions according to his wishes. Under a RLT, an interest passes to the
beneficiary while the settlor is alive, but becomes possessory only on the settlor's death. The Statute of Wills is avoided because the interest passes while the settlor is alive. While granting the trustee legal title to the property, the trustor generally retains the right to the income of the trust for life as well as the power to amend, alter, or revoke the trust in accordance with its terms.
RLTs are frequently combined with a pour-over will, a disposition in a will that transfers property, usually the remainder, into an already established trust. A pour-over provision into an established RLT does not make the RLT testamentary. [RCW ?11.12.250]
RLTs can also save administrative costs since since a judicial accounting is not required over the trust if the settlor so provides.
Substitute 2 - Contracts to Make (or Not Make) WillsA contract to make a particular testamentary disposition or to die intestate is not against public policy in WA. The property included in such a contract, if any, passes under the contract rather than the will. The validity of such a contract is determined under usual rules of contract. The testator's will is entitled to probate even though it fails to dispose of the property as agreed in the contract. The proper remedy is a suit against the decedent's personal representative for breach of contract. Most
contracts promise specific property on death and WA usually grants specific performance in a suit by the promisee.
A contract not to revoke a will does not make the will irrevocable since, by statutory definition, a will is an ambulatory instrument that may be revoked at any time before the testator's death. Such a contract is still enforceable and breach of it raises claim for damages enforceable against the estate. The contract may be a separate agreement or evidenced in the will.
Substitue 3 - Community Property AgreementsWA authorizes spouses to enter into an agreement concerning the status or disposition of community property to take effect upon the death of either. A statutory community property agreement (CPA) must be witnessed, acknowledged and certified. [RCW ?26.16.120]
Rescinding a community property agreement requires mutual consent of both parties. The CPA expires with divorce because there is no longer any community property. Assets covered by the agreement are disposed by the agreement and are not part of the deceased contracting party's estate. Where there is a valid CPA converting all separate property into community property, and the agreement conveys all property to a surviving spouse, the agreement even defeats a joint tenancy. A CPA can be filed in WA in lieu of a probate when the first spouse passes.
Substitue 4 - Life InsuranceLife insurance is arguably the most widely used will substitute. Life insurance contracts and proceeds are not considered non-probate assets in Washington. [RCW ?11.02.005(15)] A life insurance contract passes an economic interest to a beneficiary at the insured's death, but its disposition, including naming the beneficiary, is governed by the terms of the contract, not the statute of wills.
Life insurance can also be construed as a trust. In Washington, any life insurance policy or retirement plan payment provision may designate a trustee beneficiary by will or under a trust agreement. Where the trustee is named by will, the proceeds of the insurance policy or retirement plan are paid immediately to the trustee after the proving of the will. [RCW ?11.98.170] Where the trustee is named under a trust agreement, proceeds paid into the trust do not need to wait for a proving of the will.
Substitue 5 - Joint Bank AccountsJoint bank or investment accounts can be created as tenants in common or as joint
tenants with right of survivorship (JTWROS). Some banks do not create joint accounts
as tenants in common because of the complications of tracking proportionate ownership. Traditionally, joint tenants must receive their interest at the same time and through the same document. However, with assets such as bank or investment accounts, account owners can usually create or change an existing ownership arrangement to a joint tenancy by simply notifying the institution. The IRS may treat a change in ownership as a taxable gift depending on who contributed the funds and the amounts involved. A JTWROS account means that the co-owners of the account each have full access to all of the funds in the account and that at the death of one of the owners, the account is fully owned by the remaining owner(s).