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.
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.
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.
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 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 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.
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.
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.