My nephew is currently incarcerated in Washington State (for drug and gun related charges) and will be released in approximately 2 years. He told me he has restitution owed to the State for many thousands of dollars. I have a small estate and a $100,000 life insurance policy that I want to leave to him but I understand the State can go in and take most of it after I die because of the unpaid restitution. I believe I can put all this in a trust and can list his mom as the trustee (I trust her to do what I ask) to protect it for him. If she takes money out of the trust to give to my nephew, is it still protected? Can the State swoop down and take it at that time? How does this work? Thanks so much for your help!!
2 Answers from Attorneys
The simple answer is yes. I handled this very issue several years ago and the state backed off. Remember, it is YOUR money and YOU determine where it goes. All trusts in WA are automatically spendthrift trusts, meaning the beneficiary's creditors cannot access the trust. TIP: Establish an inter vivos (while you're living) trust, NOT a testamentary (in your will) trust. If it is a testamentary trust, the will that establishes the trust must be probated and the state gets notice of the funds. (This is what happened in the case I had.) HOWEVER, if it is an inter vivos trust (often in these situations called a revocable living trust), the state never knows about it. Change the insurance beneficiary to the John Smith Trust, or whatever you call it. If you have a house, title it in the name of the trust and he can live there according to the trust terms. Go see a lawyer to have it done right.
Additional point: I realize from your question that you might have been contemplating the trust as a short-term pass-through. But as soon as the beneficiary has money in his possession (wallet,bank, etc.) the state can take it. Thus, the terms of the trust must be such that the money only comes to him as needed and that the trust--rather than he--makes most expenditures and owns and maintains the items, such as a car. In that way no money comes into his possession. If he has a bank account, his information will be necessary and the state can then track him.