A Washington irrevocable trust is a trust that you generally cannot revoke or amend on your own once it is signed and funded. Giving up that control is the price of the benefits: removing assets from your Washington taxable estate, keeping life insurance proceeds out of your estate, protecting an inheritance for children and grandchildren, and, in some cases, planning for long-term care. Washington’s rules on self-settled trusts, community property, and its own estate tax make irrevocable trust planning here different from California, Nevada, or Idaho.
This page covers the main irrevocable trusts used by Washington families: why Washington does not allow self-settled asset protection trusts, irrevocable life insurance trusts, spousal lifetime access trusts and the community property complications they raise, dynasty trusts under Washington’s 150-year perpetuities rule, and trusts used in Medicaid planning. The general trust rules, including trustee duties and TEDRA, are on the Washington trusts hub. If you are still deciding whether you need anything beyond a living trust, start with the WA revocable trust page and the Washington estate planning overview.
Why Washington Families Use Irrevocable Trusts
The main driver in Washington is the state estate tax. Washington’s exclusion is $3,000,000 for deaths from July 1, 2026 through December 31, 2026, with indexing scheduled to begin in 2027, and it applies at rates from 10 to 20 percent above that amount. The federal estate tax, by contrast, reaches only a small fraction of estates. Because Washington counts the home, retirement accounts, and life insurance owned by the decedent, many Washington households with no federal exposure still face a Washington estate tax.
Washington has no gift tax. A completed gift to a properly drafted irrevocable trust, where you keep no prohibited interest or control, generally moves the asset and its future appreciation out of your Washington gross estate. That makes irrevocable trusts a practical Washington estate tax tool in a way they are not in states without an estate tax. The precise effect of lifetime gifts on the Washington computation should be reviewed for each estate, particularly for gifts made close to death.
Other reasons include protecting assets for beneficiaries from divorce and creditors, managing assets for a beneficiary who is young, disabled, or a spendthrift, and qualifying for Washington Apple Health long-term care benefits.
Washington Does Not Allow Self-Settled Asset Protection Trusts
Several states, including Nevada, Alaska, and South Dakota, permit a domestic asset protection trust in which the settlor is also a discretionary beneficiary and the trust is still protected from the settlor’s creditors. Washington is not one of them.
RCW 19.36.020 provides that a transfer of property made in trust for the use of the person making it is void as against that person’s existing or subsequent creditors. In practical terms, if you are a beneficiary of a trust you created and funded, your creditors can generally reach whatever the trustee could distribute to you. Washington’s Uniform Voidable Transactions Act, chapter 19.40 RCW, separately allows creditors to unwind transfers made with intent to hinder, delay, or defraud creditors, or without reasonably equivalent value while insolvent.
Some Washington residents consider establishing a trust in a state that allows self-settled trusts. That approach carries real uncertainty: a Washington court may apply Washington public policy to a Washington resident’s trust, particularly for Washington real property or Washington creditors. For most clients, better asset protection comes from adequate insurance, entity structuring for business and rental property, retirement accounts, and third-party trusts created for others, which Washington fully respects under RCW 6.32.250.
Irrevocable Life Insurance Trusts (ILITs) in Washington
Life insurance proceeds are free of income tax, but they are included in your estate if you own the policy or hold incidents of ownership at death. For Washington families, a single term policy can push an otherwise modest estate over the Washington exclusion.
An irrevocable life insurance trust owns the policy and is named as its beneficiary. When structured correctly, the proceeds are not included in either spouse’s Washington or federal gross estate. Key features:
- The trustee, not the insured, owns the policy and pays premiums from contributions made to the trust.
- Contributions can qualify for the federal gift tax annual exclusion if beneficiaries receive “Crummey” withdrawal rights and are notified of them.
- An existing policy transferred to an ILIT is pulled back into the estate if the insured dies within three years under IRC § 2035, so it is often better for the trust to acquire a new policy.
- If the policy was purchased with community property, the trust and transfer documents must address each spouse’s community interest to avoid unintended inclusion in the non-insured spouse’s estate.
- The trust can hold proceeds for a surviving spouse and then for children, keeping them out of the survivor’s estate as well.
Spousal Lifetime Access Trusts (SLATs) and Community Property
A spousal lifetime access trust is an irrevocable trust one spouse creates for the other spouse, and often for children. The donor spouse’s gift removes the assets from both spouses’ estates, while the beneficiary spouse can still receive distributions, which gives the couple indirect access.
SLATs require special care in Washington:
- Community property problem: if a SLAT is funded with community property, the beneficiary spouse is treated as having contributed half, which can make half the trust a self-settled trust exposed under RCW 19.36.020 and includable in the beneficiary spouse’s estate. The usual solution is for the spouses to partition community property into separate property by written agreement before funding, and to fund the SLAT only with the donor spouse’s separate property.
- Reciprocal trusts: if both spouses create SLATs for each other with substantially identical terms at about the same time, the IRS may “uncross” them under the reciprocal trust doctrine. The trusts should differ meaningfully in terms, timing, and assets.
- Divorce risk: the beneficiary spouse remains a beneficiary unless the trust defines “spouse” to cover only the current spouse. RCW 11.07.010 revokes certain nonprobate transfers at dissolution, but it should not be relied on for an irrevocable trust; the document itself should address divorce.
- Loss of basis adjustment: partitioning community property into separate property gives up the full basis adjustment at the first death under IRC § 1014(b)(6) for those assets, and assets in the SLAT do not receive a basis adjustment at either death. The Washington estate tax saving must be weighed against that income tax cost.
Dynasty Trusts and Washington’s 150-Year Period
Washington’s perpetuities statute, RCW 11.98.130, allows interests in a trust to vest up to 150 years after creation. That makes it possible to create a long-term dynasty trust that holds assets for children, grandchildren, and great-grandchildren, protected from their creditors and divorces by a spendthrift clause and outside each generation’s estate.
Dynasty trusts are typically paired with the federal generation-skipping transfer tax exemption, allocated to the trust so that distributions to grandchildren and later generations are not subject to GST tax. Because the trust may run for many decades, it should include a trust protector, a decanting-friendly distribution standard under chapter 11.107 RCW, and a mechanism for changing trustees and situs. Washington’s binding nonjudicial agreement procedure under RCW 11.96A.220 also allows administrative changes over time without litigation.
Intentionally Defective Grantor Trusts
An intentionally defective grantor trust is irrevocable and outside your estate for estate tax purposes, but it is treated as owned by you for federal income tax purposes. You pay the income tax on trust earnings, which is effectively an additional tax-free gift to the beneficiaries. These trusts are often used for sales of family business interests or real estate to the trust in exchange for a promissory note, freezing the value in your estate. Washington has no personal income tax, but trustees and grantors should consider the state’s capital gains excise tax under chapter 82.87 RCW when appreciated assets inside the trust are sold, since grantor trust gains are generally attributed to the grantor.
Irrevocable Trusts in Washington Medicaid Planning
Long-term care in Washington is covered by Apple Health (Medicaid) for those who meet financial and medical eligibility rules, administered through the Health Care Authority and the Department of Social and Health Services. Trusts are treated under federal law, 42 U.S.C. § 1396p, and Washington’s rules in WAC 182-516-0100 and related sections.
- Revocable trusts: assets are counted as available resources. A revocable trust offers no Medicaid protection.
- Irrevocable income-only trusts: if the trust gives you only the right to income and no access to principal, the principal may be treated as unavailable after the transfer penalty period has run. Transfers into the trust are subject to the federal sixty-month look-back.
- Third-party trusts: trusts created by others for your benefit, with appropriate discretionary language, are not counted as your resources.
- First-party special needs and pooled trusts: available in specific circumstances for individuals with disabilities; see the WA special needs trusts page.
Washington’s estate recovery program under RCW 43.20B.080 can reach certain nonprobate assets, not just the probate estate, so trust planning for a Medicaid applicant must consider what happens at death as well as during life. Medicaid planning should be done well in advance and coordinated with an elder law review; see Washington elder law.
Changing an Irrevocable Trust in Washington
“Irrevocable” does not always mean unchangeable. Washington offers several tools:
- Decanting under chapter 11.107 RCW, which allows a trustee with discretionary distribution authority to move assets into a new trust with updated terms, subject to notice and specific prohibitions.
- Binding nonjudicial agreements under RCW 11.96A.220, with virtual representation of minor and unborn beneficiaries under RCW 11.96A.120.
- Judicial modification under TEDRA, chapter 11.96A RCW, when circumstances have changed or the trust’s purposes can no longer be met.
- Trust protectors and powers of appointment written into the original document, which provide flexibility without any proceeding.
Each of these must be used carefully, since a change that gives the settlor too much control can undo the trust’s estate tax benefits.
Setting Up and Administering an Irrevocable Trust Correctly
An irrevocable trust only delivers its benefits if it is set up and run with discipline. Holmes Law’s Washington irrevocable trust engagements include guidance on each of the following steps.
Choosing the trustee
For estate tax purposes, the settlor generally should not serve as trustee of a trust intended to be outside his or her estate, and a beneficiary serving as trustee should be limited to distributions under an ascertainable standard such as health, education, maintenance, and support. An independent trustee can hold broader discretion. The trust should name successor trustees and provide a mechanism for replacing a trustee without court involvement.
Funding and documentation
The trust obtains its own taxpayer identification number if it is a nongrantor trust, opens its own accounts, and receives assets by properly documented transfers. Real property is conveyed by recorded deed. Closely held business interests are assigned with any required consents and may be appraised to support valuation discounts.
Gift tax reporting
Transfers to an irrevocable trust are gifts for federal purposes. A federal gift tax return is often required, even when no tax is due, to allocate the lifetime exemption and the generation-skipping transfer tax exemption and to start the statute of limitations on valuation. Washington itself has no gift tax and no state gift tax return.
Ongoing administration
The trustee keeps trust assets separate, sends any required Crummey notices, pays premiums or other expenses from trust funds, files income tax returns, and provides the notices and reports required under RCW 11.98.072 and chapter 11.106 RCW. Informal use of trust assets by the settlor, such as living rent-free in a residence owned by the trust, can pull the assets back into the settlor’s estate and should be avoided.
Taxation of Washington Irrevocable Trusts
A nongrantor irrevocable trust is a separate federal taxpayer and reaches the highest federal bracket at a comparatively low level of income, so trustees often distribute income to beneficiaries in lower brackets. A grantor trust’s income is taxed to the grantor. Washington has no personal income tax, but it does have a capital gains excise tax that may apply depending on the trust’s structure. Assets properly removed to an irrevocable trust are generally excluded from the Washington gross estate, though they also do not receive a new income tax basis at death.
Frequently Asked Questions
Can I create an asset protection trust for myself in Washington?
No. RCW 19.36.020 makes a trust created for your own benefit void as against your creditors. Washington does respect spendthrift trusts that others create for you.
Does an ILIT help with Washington estate tax?
Yes. Properly structured, an ILIT keeps life insurance proceeds out of your Washington gross estate, which can be the difference between owing Washington estate tax and not.
Can a SLAT be funded with community property?
It should not be. Community property should first be partitioned into the donor spouse’s separate property by written agreement, to avoid self-settled trust and estate inclusion problems.
How long can a Washington dynasty trust last?
Interests must vest within 150 years after creation under RCW 11.98.130.
Will an irrevocable trust protect my house from Medicaid?
Possibly, if the right kind of trust is funded early enough to clear the sixty-month look-back. Revocable trusts provide no protection.
Can an irrevocable trust be changed later?
Often, through decanting, a TEDRA agreement, a trust protector, or a court order, but changes must be managed so they do not undermine the trust’s purposes or tax treatment.
Speak With a Washington Irrevocable Trust Attorney
Irrevocable trusts are powerful and permanent, and in Washington they must be coordinated with community property, the state estate tax, and Medicaid rules. Michael Holmes advises Washington clients on ILITs, SLATs, dynasty trusts, and Medicaid planning trusts, working remotely. Contact Holmes Law about Washington irrevocable trust planning, or visit the Washington estate planning page to see how these trusts fit into a complete plan.