Does a Testamentary Trust avoid Probate?

No. A Testamentary Trust is built into a Last Will & Testament, meaning it must go through Probate to be activated. This is mitigated to some degree because Probate in Washington State is uniquely simple, fast, and inexpensive compared to states like California or New York — but it still requires court involvement, public records, and executor work that a Revocable Living Trust avoids entirely.

What happens to privacy with a Testamentary Trust?

The Probate process makes your assets, your Last Will & Testament, and the terms of your Trust a matter of public record. Christopher has had three cases in which the publication of the Probate inventory by another lawyer resulted in the house being burglarized. Thieves pulled a moving truck up to the parent's house very quickly — before the neighbors even knew they were dead — and took everything. It was upsetting to the adult children Beneficiaries. It could have been avoided with a Transfer on Death Deed.

What is the real cost of a Testamentary Trust to heirs?

A Testamentary Trust requires the Executor and Trustee to do significant setup work after the Grantor dies. Many families do not understand that a Testamentary Trust does not exist in the present and cannot be used to open a bank account, be named as a Beneficiary on a 401(k) or life insurance policy, or be named as a Beneficiary on a Transfer on Death Deed. Christopher had a case where parents recorded a Quitclaim Deed to their Testamentary Trust. After they died and the Probate was complete, the son tried to sell the house. The County Recorder asked for a copy of the Trust. He did not have one because he never created the Trust during the Probate — so he had to re-open the Probate and create the Testamentary Trust in order to sell the house.

Is there any advantage to a Testamentary Trust?

The only advantage is lower upfront cost. Unlike a Revocable Living Trust, which requires drafting a separate Trust agreement and manually transferring titles to Real Estate and accounts during life, a Testamentary Trust costs nothing to fund upfront. It is built directly into the text of the Last Will & Testament and remains dormant until funded by the Estate Probate process or through Beneficiary Designations. However, Beneficiary Designations and Transfer on Death Deeds work better with Revocable Living Trusts. There is no reason to use a Testamentary Trust — there is only risk of misunderstanding, disputes, and improper formation and funding.

How does a Revocable Living Trust compare to a Testamentary Trust?

A Revocable Living Trust takes effect during the Grantor's lifetime, bypasses Probate completely, remains a private contract never filed in court, and requires assets to be retitled immediately. A Testamentary Trust only takes effect after the Grantor's death, must go through Probate to be created, becomes a public record attached to the Probated Will, and requires no upfront funding. For a $3 million Estate with complex family needs — minor children, a special needs Beneficiary, Washington Estate Tax exposure — a Revocable Living Trust with integrated Sub-Trusts is the only appropriate tool.

What is the Washington State Estate Tax threshold for 2026?

Under Senate Bill 6347, the Washington State Estate Tax exclusion resets to exactly $3,000,000 for deaths occurring on or after July 1, 2026. Washington does not allow portability of the state exemption between spouses. A properly structured Revocable Living Trust with a Disclaimer Credit Shelter Sub-Trust can effectively double or triple the exemption — protecting up to $9 million from Washington Estate Tax. See the Washington Department of Revenue for current rates and thresholds.

How should retirement accounts be handled to avoid Probate?

You cannot change the lifetime owner of an IRA, 401(k), or 403(b) to a Trust — doing so triggers immediate, catastrophic income taxes on the entire balance. Instead, retirement accounts are managed using Beneficiary Designations to bypass Probate and fund Sub-Trusts. Name your spouse as 100% Primary Beneficiary to allow a spousal rollover. Name your Revocable Living Trust as 100% Contingent Beneficiary. For minor children and special needs Beneficiaries, the Trust must contain IRS See-Through Accumulation Trust provisions and, for the special needs child, an Applicable Multi-Beneficiary Trust (AMBT) to preserve the lifetime stretch and protect government benefits.

What is the IRS 10-Year Rule and how does it affect minor children?

Under federal law, most non-spouse Beneficiaries must withdraw 100% of an inherited retirement account within 10 years. However, minor children of the account owner receive a temporary exemption as Eligible Designated Beneficiaries (EDBs) — they can take small annual Required Minimum Distributions based on their long life expectancies while they are under age 21. The moment a child turns 21, the IRS 10-Year Rule triggers and the entire remaining balance must be emptied and taxed by age 31. A properly structured Accumulation See-Through Trust allows the Trustee to pull the mandatory distributions but hold the cash safely inside the Trust — distributing it only at mature ages you choose (e.g., 25, 30, 35).

What is an Applicable Multi-Beneficiary Trust (AMBT) for a special needs child?

A disabled or chronically ill individual is permanently classified as an Eligible Designated Beneficiary (EDB) — completely exempt from the 10-Year Rule. They can spread retirement distributions over their entire natural lifetime. To achieve this lifetime stretch without destroying government benefit eligibility, the retirement account must explicitly name an Applicable Multi-Beneficiary Trust (AMBT) as the Beneficiary. The AMBT acts as an accumulation Trust — the Trustee pulls the low annual RMD from the IRA and uses it to pay third parties directly for the child's comfort items (adapted vehicles, electronics, private therapies), ensuring zero income is legally attributed directly to the child and preserving access to Medicaid and SSI.

Christopher S. Mulvaney, Esq. — Attorney-and-Counselor-at-Law — Professionalism with Integrity — WSBA#33595 — Licensed Only in Washington State

[email protected]Bellevue, WA

Testamentary Trusts

Trusts Overview

Why Christopher Does Not Use Them

A Testamentary Trust is created inside a Last Will & Testament and takes effect only upon the Grantor's death — requiring Probate to activate.

A Testamentary Trust is a Trust created within a Last Will & Testament that takes effect only upon the death of the Grantor. It provides a mechanism to manage, protect, and distribute wealth over time, bridging ancient common-law legal structures with modern tax compliance. However, all of these goals are more efficiently accomplished in a superior way — with less risk — using Revocable Living Trusts and Irrevocable Trusts.

Ancient & Modern History

Medieval England: Feudal Uses➔1535: Statute of Uses➔1677: Statute of Frauds➔2026: Modern State Trust Codes

Medieval Origins: Trusts grew out of "uses" in medieval England, allowing landowners passing away in the Crusades to leave land managed by a trusted peer for the benefit of their wives and children, bypassing rigid feudal property laws.

Codification: The Statute of Uses (1535) and the Statute of Frauds (1677) formalised these agreements, requiring written Last Wills & Testaments to pass land and creating the formal split between legal title (held by the Trustee) and equitable title (held by the Beneficiary).

Evolution of Purpose: Originally used by European nobility to preserve massive landed Estates, Testamentary Trusts evolved throughout the 20th century into tools for the middle and upper-middle classes to protect minor children, navigate divorce, and manage tax exposure — all of which are accomplished in a superior way with Revocable Living Trusts and Irrevocable Trusts.

Testamentary Trusts today are created by people who want to kick the can down the road and burden their heirs with doing work that they should do — which increases rather than decreases the likelihood of disputes.

In Christopher's opinion, it is malpractice for a lawyer to create a Testamentary Trust. A Testamentary Trust never serves the client's best interests. A lawyer's duty is to match the tool to the client's specific goals, budget, and family dynamic. Revocable Living Trusts and Irrevocable Trusts are the Gold Standard for doing so.

Key Disadvantages

The Probate Requirement

A Testamentary Trust is built into a Last Will & Testament, meaning it must go through Probate to be activated. Probate in Washington State is simpler than California or New York — but it still requires court involvement, public records, and executor work that a Revocable Living Trust avoids entirely.

Future Work for Heirs

The Executor and Trustee must do significant setup work after the Grantor dies. A Testamentary Trust does not exist in the present and cannot be used to open a bank account, be named as a Beneficiary on a 401(k) or life insurance policy, or be named as a Beneficiary on a Transfer on Death Deed.

Public Court Records

The Probate process makes your assets, your Last Will & Testament, and the terms of your Trust a matter of public record. Christopher has had three cases where publication of the Probate inventory resulted in the house being burglarized before the neighbors even knew the owners were dead.

Lower Upfront Cost — False Economy

The only advantage is lower upfront cost. A Testamentary Trust costs nothing to fund upfront — it is built into the Will and remains dormant until funded by Probate. But Beneficiary Designations and Transfer on Death Deeds work better with Revocable Living Trusts. There is no reason to use a Testamentary Trust — there is only risk.

Comparative Overview

Feature	Testamentary Trust	Revocable Living Trust
When it Takes Effect	Only after the Grantor's death.	During the Grantor's lifetime.
Upfront Funding Required	No — funded during Probate.	Yes — assets must be retitled immediately.
Probate Court Requirement	Must go through Probate to be created.	Bypasses Probate completely.
Privacy	Public record (attached to the Probated Last Will & Testament).	Private contract — not filed in court.

The Solution: A Living Trust with Integrated Sub-Trusts

To bypass Probate, you create and fund a Revocable Living Trust during your lifetime. Upon your death, the assets inside the living Trust immediately split into specialized Sub-Trusts without ever stepping foot inside a courtroom.

              [ $3 Million Revocable Living Trust ]
                               │
            ┌──────────────────┴──────────────────┐
            ▼                                     ▼
 [ Credit Shelter / Bypass Trust ]     [ Specialized Sub-Trusts ]
 • Shelters up to $3M WA Exemption       • Staged Minor's Trust (HEMS)
 • Spouse gets income & access           • Third-Party Special Needs Trust
 • Escapes WA Estate Tax at 2nd death    • Total Probate avoidance

1. Avoiding Probate Completely

Assets held in the name of your living Trust transfer to your successor Trustee privately and immediately upon your death. You entirely bypass Washington court-filing fees, mandatory creditor notification waiting periods, and public asset inventories.

2. Protecting Your Spouse & Navigating Washington Estate Tax

For deaths occurring on or after July 1, 2026, the Washington State Estate Tax exclusion limit resets to exactly $3,000,000. Because Washington does not allow portability of the state exemption between spouses, your living Trust should dictate that upon your death, your share is placed into a Credit Shelter Trust. Your spouse can access income and principal for health, education, maintenance, and support (HEMS), but the money is not counted in their Estate later — completely eliminating Washington Estate Tax exposure when the second spouse passes away.

3. Protecting Minor Children

The Trust agreement dictates that if your children are minors when you and your spouse pass away, a Trustee handles the funds. You can structure the Trust to distribute portions of the principal at milestones — one-third at age 25, one-third at 30, and the remainder at 35 — while paying for their upbringing in the meantime. You can specify the details in a Letter of Instruction.

4. Protecting the Special Needs Beneficiary

A Third-Party Special Needs Trust (SNT) — a critical Irrevocable Sub-Trust within your Revocable Living Trust — holds the inheritance meant for your special needs child. The Trustee manages the funds strictly for supplemental comforts (technology, therapy, travel) but never gives cash directly to the Beneficiary. This specific structure ensures they do not lose access to state and federal programs like Supplemental Security Income (SSI) or Medicaid.

Asset Allocation Strategy: Traditional IRAs vs. Real Estate

A dollar of Real Estate is worth 100 cents, but a dollar of a Traditional IRA is burdened by ordinary income tax and is worth only 60 to 70 cents. To achieve equal division, benefit preservation, and Probate avoidance, your Revocable Living Trust should contain a directed funding clause — allocating Real Estate to the minor child's share and Traditional IRA assets to the Special Needs Trust share.

                [ $3 Million Revocable Living Trust ]
                                  │
         ┌────────────────────────┴────────────────────────┐
         ▼                                                 ▼
 [ Share 1: Minor Child ]                   [ Share 2: Special Needs Child ]
 • 100% of the Real Estate                  • 100% of the Traditional IRA
 • High tax basis (no capital gains)        • Stretched over their lifetime
 • Minimizes the 10-year tax bomb           • Maximizes government benefits

Why Real Estate Goes to the Minor Child

Community property Real Estate receives a 100% step-up in tax basis when the first spouse passes away — wiping out any built-in capital gains tax. By giving the minor child the Real Estate (or the cash from selling it), you reduce the amount of Traditional IRA money they receive, protecting them from having to empty a massive taxable retirement account by age 31.

Why the Traditional IRA Goes to the Special Needs Trust

As a disabled individual, the special needs child is an Eligible Designated Beneficiary — the only person who can legally bypass the 10-year rule and stretch IRA distributions over 30, 40, or 50 years. Spreading withdrawals over a lifetime keeps annual distributions small, keeps the Trust in a low tax bracket, and preserves the principal to pay for supplemental needs.

Mandatory IRS See-Through Trust Provisions

Without precise See-Through Accumulation Trust provisions, the IRS rejects the Trust's see-through status and treats it as a "non-designated Beneficiary" — forcing the entire retirement account to be emptied and heavily taxed within 5 years, completely defeating multi-decade tax-deferral goals.

The Separate Accounts Mandate

The Trust must mandate that immediately upon the second spouse's death, the Trust assets are split into fractional, separate Sub-Trusts. Your successor Trustee must formally establish separate inherited IRAs with the financial custodian by December 31 of the year following your death.

The "Identifiable" Beneficiary & Clean-Up Clause

The IRS must be able to count every single person who could ever touch a dollar of that retirement money. No entities or charities may be named as Beneficiaries. All potential successor and remainder Beneficiaries must be identifiable individuals.

Minor Child "Age 21" Transition Rule

From age 1 to 21, the Trustee pulls tiny annual RMDs based on the child's long life expectancy. The moment the child turns 21, the IRS 10-Year Rule triggers. The Trust must give the Trustee absolute discretion to withdraw the remaining balance over those 10 years — holding the cash safely inside the Trust away from the 21-year-old.

The Applicable Multi-Beneficiary Trust (AMBT)

For the special needs share, the Trust must use the precise statutory language of an AMBT (Type I) to lock in the lifetime stretch. It must explicitly state that no retirement distributions can be paid directly to the disabled Beneficiary — the Trustee must accumulate RMDs or pay vendors directly to maintain strict compliance with Medicaid and SSI resource limits.

⚠ Crucial Administrative Deadline

Even if the See-Through provisions are written flawlessly, they fail if the administrative deadline is missed. Your successor Trustee must provide a copy of the final Trust documentation to the retirement plan custodian (e.g., Vanguard, Fidelity) by October 31 of the year following the year of your death. If they fail to upload the document by this date, the see-through status is permanently revoked.

2026 Federal Trust Income Tax Brackets

Accumulating traditional retirement funds inside a Trust triggers the most compressed, aggressive tax brackets in the federal system. When an Accumulation See-Through Trust pulls a required distribution from a Traditional IRA, that distribution is treated as ordinary taxable income. If the Trustee keeps that money inside the Trust rather than passing it directly to the child, the Trust itself must pay the tax.

Taxable Income	Marginal Tax Rate
$0 to $3,300	10%
$3,300 to $11,700	24%
$11,700 to $16,000	35%
$16,000 or more	37% + 3.8% NIIT = 40.8%

While a single individual does not hit the top 37% rate until they make over $640,600 in 2026, a Trust hits that same 37% maximum rate on any retained income over just $16,000. Once the Trust's retained income crosses $16,000, it also triggers an additional 3.8% Net Investment Income Tax (NIIT), driving the actual federal marginal rate to 40.8%.

Step-by-Step Implementation Blueprint

Draft a Revocable Living Trust

Retain Christopher S. Mulvaney to draft the RLT featuring Disclaimer Credit Shelter, Minor's Pot, and Special Needs Sub-Trust provisions.

Fund the Trust (Critical Step)

Only the bank account will be owned by the Trust during your life. Real Estate is transferred with a recorded Transfer on Death Deed by recording of your Death Certificate. Investment accounts are transferred via Beneficiary Designations with submission of your Death Certificate to the custodian along with a PDF of the Trust. Assets not addressed by these tools trigger Probate over $100,000.

Update Beneficiary Designations

Set your life insurance policies and retirement accounts (IRAs, 401(k)s) to name the Trust as the primary or contingent Beneficiary — depending upon whether you are married and whether you are doing Estate Tax Avoidance Planning.

Last Will & Testament — Now Optional

After COVID, the Electronic Wills Statute is defective and WA Probate law allows Non-Intervention by the Court Powers which facilitate theft by Beneficiaries. An Affidavit signed by each Beneficiary in an Intestate Probate is superior because there is no hassle of getting the original paper Will to the Court, and the Beneficiaries communicate and agree on their wishes for how to proceed administratively.

✅ Core Recommendation Summary

Under Washington law in 2026, a $3 million Estate with complex family needs must use a fully funded Revocable Living Trust to achieve total Probate avoidance. A Testamentary Trust is fundamentally incapable of skipping the Probate court process. With a $3 million Estate structured as community property consisting of Real Estate and retirement accounts, you face a highly unique Estate planning challenge. The Washington Estate Tax exemption resets to $3,000,000 for deaths on or after July 1, 2026. Your Estate sits precisely on this tax threshold.

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Testamentary Trusts | Mulvaney Law Offices

Testamentary Trusts

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