Estate Planning: Is a Revocable Living Trust a Good Option?

A revocable living trust in Virginia, also called a living trust or inter vivos trust, has become a popular estate planning option because of the many benefits it offers.  A revocable living trust is flexible and the terms can be changed at any time, or the trust may be cancelled entirely. Currently, about 20% of Americans have living trusts as part of their estate plans.  A living trust may help you avoid the costs and aggravation of probate, preserve privacy, and offers ease of transition of your assets to your beneficiaries after you die.

What is a Revocable Living Trust?

A living trust is a legal document that holds the assets of the trust creator, known legally as the grantor, in a trust for his or her benefit during their lifetime. When creating the revocable trust you will need to name a trustee who has the responsibility of managing the trust assets. You can select anyone, but the most common practice is to name yourself so that you can maintain control of your assets while living. You will also need to choose a successor trustee to step in after your death or incapacitation to continue trust management and distribute the trust assets to your beneficiaries according to your directions. The successor trustee can be a relative, friend or an organization like a financial institution.

What are the benefits of a living or revocable trust?

Control of your estate

A living or revocable trust provides control of your estate, even after death, by setting out a clear plan to deal with all of your assets.  Although the assets are technically owned by the trust, you continue to use them as you normally would. You live in your home and spend your money as you wish. After your death, your estate will be handled exactly as you wish since the assets stay in the trust until the dates you have chosen for distribution to your beneficiaries. You may choose specific ages for beneficiaries to inherit or even set up a monthly allowance or other schedule.  You can provide extended care for a loved one with special needs and protect specific assets from others.  If, on the other hand, you pass your assets with a will, they are distributed once probate has concluded.

A Living Trust Avoids Probate

Probate is the court-supervised process of distributing a deceased person’s estate. Depending on the size and complexity of the estate, as well as the assets and individuals involved, probate may become a lengthy and costly process which can delay distributions to your beneficiaries and decrease the amount that they inherit. The Commonwealth of Virginia has not adopted the Uniform Probate Code, so its probate procedures are lengthy and may be complicated. A trust avoids all of this red tape and allows you to pass your assets to your beneficiaries immediately upon your death, if you wish, unlike a last will and testament which cannot distribute assets until probate has concluded. By placing your property in a living trust, you can avoid probate and those additional costs. Instead of the court supervising the distribution of your estate, the successor trustee distributes assets according to the trust creator’s instructions. This can mean a faster distribution to your heirs.  Probate may take months or years to resolve. Distribution by the successor trustee may only take a matter of weeks. The avoidance of probate may be particularly helpful if you own property in other states, like a vacation home, as it would pass directly to your beneficiary through the trust and not be subject to probate in another state. A note about cost savings:  Though there may be savings in probate costs, the initial up-front costs of setting up and funding a living trust are more expensive than creating a last will and testament.  A revocable living trust does not protect your assets from federal estate tax, Medicaid spend down, or creditors.

If you become incapacitated

If you become ill or incapacitated and can no longer take care of your own financial affairs, the person you have chosen as successor trustee can step in without the intervention of a court. All of your assets are already owned, controlled, and managed by the trust. In this way, you can avoid a conservatorship proceeding.  While a durable power of attorney can be rejected, a trust cannot.  Your financial life is protected by the trust.

A living trust protects your privacy

A living trust protects your privacy since its terms, assets, and beneficiaries are never disclosed to the public. Unlike a will, a living trust is a private document between the parties involved, and does not become part of the public record. No one can later go and search public records to find out more about the distribution of your estate.  A will is a public record, so everything in it becomes public as well.  Avoiding the probate process will help protect your privacy.

A “pour-over” will

Even if you have a revocable living trust, it is still important to have a last will and testament.  When you have a living trust and a will, the will is often referred to as a pour-over will because it’s designed to catch any unfunded property or other assets that have not been transferred into the trust.  A will may also outline your final wishes, something you generally do not put into a living trust document. A pour-over will is a safety net.  It simply states that any assets that have not been transferred into your revocable living trust should go there when you die.  In other words, it names your trust as the beneficiary of any property that it does not already hold or that does not pass directly to a living beneficiary through other means, such as a beneficiary designation on a retirement account or life insurance policy.  A pour-over will requires probate. If you don’t include a pour-over will in your estate plan, any property not funded by your living trust, will pass to your heirs according to Virginia intestacy law. This means that if you forget to fund your new vacation home into your trust and you don’t have a pour-over will, or any other type of will that directs the property to someone specific, the Commonwealth of Virginia will decide who inherits the home based on its laws. In addition, if minor children are involved, the pour-over will can also be used to name potential guardians.  This is most important if you are a single parent or if your spouse is unable to provide the care your children will need.

Contact Melone Law, P.C.

Having a comprehensive estate plan in place can ensure you minimize court costs, legal fees, and tax implications for you and your loved ones.  If you are considering a revocable living trust for your estate, speak with a knowledgeable and experienced estate planning attorney to learn more about the benefits and disadvantages of a revocable living trust on your life, assets, and family.  Call today at 703.995.9900 to set up a consultation.

Estate Planning Documents for Adults with Special Needs

Thanks to technology and medical research, more and more children with special needs are living productive lives well into adulthood, making it more and more likely that they will outlive their parents. As a result, parents must plan for their adult children with special needs. A significant number of these adult children with special needs will require government programs such as Medicaid and SSI as well as other programs. The problem lies in the fact that the resources considered to be available to a special needs adult can reduce, or totally eliminate, that person’s eligibility for such programs. A carefully-crafted special needs trust can preserve the eligibility for government benefits while providing additional financial resources for the special needs adult.

Self-Settled Special Needs Trust

While a special needs trust is considered the “centerpiece” of any estate plan intended to benefit a special needs adult, there are other pertinent documents as well. One of these is a self-settled special needs trust, which is funded with the child’s own assets, such as an inheritance, accumulated wealth or a personal injury settlement. Any type of asset which the disabled adult has the legal right to use without restriction can be placed into a self-settled special needs trust. There are downsides to this type of special needs trust, however, so it is important to consider the following:
  • Medicaid must be reimbursed from the self-settled trust for benefits received by the beneficiary, upon the beneficiary’s death;
  • A self-settled special needs trust can limit the types of payments made by the trustee;
  • A self-settled special needs trust may, in some instances, require an annual payment be made to Medicaid;
  • The assets in a self-settled special needs trust will be taxed as though the assets still belong to the beneficiary;
  • The beneficiary must be under the age of 65 for a self-settled special needs trust to be established, and
  • If the rules of a self-settled special needs trust are not followed to the letter, the beneficiary’s eligibility for SSI or Medicaid could be compromised.
Other aspects of an estate plan which must be contemplated when considering the future of a special needs adult include the following:
  • When you are planning for the future of your child as a special needs adult, you may not want to name that child as beneficiary of your retirement plan or retirement account, as this could make them ineligible for government assistance programs. A better choice might be to leave your retirement plan or individual retirement account to another beneficiary, then make an equalizing gift of other assets to the special needs trust.
  • If you currently have term life insurance, you might want to purchase a permanent life insurance policy. While this type of policy is more expensive, you can expect this type of policy to more fully provide for your special needs adult child, no matter your age at death. Permanent life insurance does not require you to re-qualify for life insurance once the policy is in force. If you are in deteriorating health, it can become difficult to continue to qualify for a term life policy.
  • If your adult child with special needs will require some level of caregiving, you will want to make sure to have a will which has a provision appointing a guardian, as well as a successor guardian in the event of the original guardian’s incapacity or death.
  • Many estate planning attorneys will advise clients seeking to ensure the future of an adult child with special needs to have a nonbinding letter or statement of wishes regarding care and custody of the adult child during the interim, before the guardian has taken over the duties. There is usually a period of time before the payment of life insurance proceeds and the appointment of a successor guardian when everything is somewhat “up in the air.” Thus, a nonbinding letter can advise those taking care of the adult with special needs about medications, dietary restrictions, housing arrangements, and any other pertinent details.
While taking care of all of the above issues is important, as noted, a special needs trust is the backbone of any estate plan for parents of an adult child with special needs. Your Virginia estate planning attorney can offer practical short and long-term considerations tailored to your unique situation, and the nature of your adult child’s disability. There may be others in the family, such as siblings, grandparents, aunts or uncles who want to help provide for the adult special needs child in their own estate plans, therefore the special needs trust could apply to others, in addition to the parents. The experienced Virginia estate planning attorneys at Melone Law, P.C. can help parents and relatives of an adult with special needs to ensure that assets will pass to the child, but will not be considered available assets for the purpose of governmental assistance. Contact us today for a consultation.

Estate Planning Myths…What You Really Need to Know in Virginia

According to a Forbes article, at least 51 percent of Americans between the ages of 55 and 64 don’t have a will. That number is even higher among those between the ages of 45 and 54, at 62 percent. Perhaps one reason these numbers are so high is due to the number of myths and misunderstandings associated with estate planning. Whether due to inaccurate information from friends and family members or incomplete reports by the media, these myths can sometimes stop those who were intending to engage in estate planning from doing so. If you have any assets at all—and most everyone does—and you want to ensure you leave those assets to loved ones you choose, then it’s essential that you have an estate plan. You may have heard one or more of the following estate planning myths:

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What Happens if a Person Dies Without a Will in Virginia?

my-willShockingly, some 55 percent of American adults have neither a will nor any other type of estate plan in place. This number has remained fairly steady for the past fifteen years and does not take into account the number of adults who have put medical directives in place—a number which has actually increased. Although medical directives, which explain what type of medical care you want to receive should you become incapacitated, are a good thing to have, they do not help your family with your financial affairs should you die suddenly. Among minorities, the number of American adults who do not have a will is even higher. Nearly three-quarters of Hispanic adults and about 68 percent of black adults do not have a will. In general, those adults who do have wills are over the age of 60.

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Guardianship and Conservatorship in Virginia

Guardians and conservators are appointed to represent and protect the interests of incapacitated persons. Incapacitation means the person is unable to make decisions on their own. The incapacitated person is referred to as the “ward.” Statutory authority for these appointments can be found in Virginia Code 64.2-Chapter 20. A guardian acts to make decisions with regard to the ward’s healthcare and living conditions but does not necessarily have authority to spend money or make decisions regarding the ward’s finances. A separate appointment as conservator is required to obtain authority over an incapacitated person’s financial affairs. Without a power of attorney in place, the only way to gain authority over an incapacitated person is through guardianship and conservatorship proceedings in the Circuit Court. A judge decides whether the person is incapacitated and who should act as guardian and/or conservator. A guardian’s authority can be broad or it can be limited in nature and duration. Authority may be limited depending on the ability of the incapacitated person to take care of his own personal, health, and safety needs. The extent or limitations of authority will be enumerated in the court’s Order. Similarly, the authority of a guardian may be broad or limited in nature. The court may grant authority over all of the ward’s financial affairs or may only be permitted to exercise authority over one account for limited purposes. When a petition is filed for guardianship and conservatorship, the court will appoint a guardian ad litem to investigate the respondent’s condition and report the same to the court. The guardian ad litem is responsible for providing a copy of the petitions to the incapacitated person and advising him of his rights during the proceedings. The incapacitated person may elect to hire their own attorney to represent their interests in the proceedings. After the guardian ad litem’s investigation is complete, a hearing will be held on the petition. The respondent can request a jury trial, can present his own evidence, and has the right to confront and cross-examine witnesses. Following the standards set in Virginia Code 64.2-2007, the court will consider: (i) the limitations of the respondent; (ii) the development of the respondent’s maximum self-reliance and independence; (iii) the availability of less restrictive alternatives, including advance directives and durable powers of attorney; (iv) the extent to which it is necessary to protect the respondent from neglect, exploitation, or abuse; (v) the actions needed to be taken by the guardian or conservator; (vi) the suitability of the proposed guardian or conservator; and (vii) the best interests of the respondent. After the hearing, the court may order appointment of a guardian and conservator while giving deference to the known wishes of the respondent. The guardian and conservator must file reports each year concerning the ward’s physical condition and financial status. Appointment of a guardian and conservator essentially removes the ward’s rights to make decisions for himself, so it should only be used as a last resort when other options are not available. If you have a loved one who is incapacitated, you should consult with an attorney to determine whether guardianship and conservatorship proceedings are an option.
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