It is a common misconception that a “trust” is something that is only appropriate for “rich people.” But trusts are actually a common tool used by all types of people at all income and asset levels to give themselves greater flexibility in their estate planning and asset management.
For general estate planning, the most common trust is a “revocable living trust” also referred to as an RLT. RLT are trusts created during a person’s lifetime (the “living” part of the name) and can be changed by amending it or done away with altogether by revoking it entirely (the “revocable” part of the name) by the person who established it (the “grantor”) at any time before the grantor’s death by the grantor him or herself or via an agent under a durable property power of attorney that explicitly gives the agent the authority to modify or revoke the RLT. Once the grantor dies, the trust typically becomes irrevocable, which means that no further changes can be made to it.
How Do Trusts Work?
A trust is a legal, contractual document between the grantor and the trustee, who is usually the grantor when the trust is an RLT. The grantor transfers ownership of the grantor’s privately owned assets to the trustee to be held and administered by the trustee for the benefit of the beneficiaries that the grantor named. During the grantor’s lifetime, the initial RLT beneficiaries are often the grantor, the grantor’s spouse, and the grantor’s minor children, if any.
If the grantor can no longer serve as trustee, either due to age, infirmity, incapacity, or death, the trust names a successor trustee to take over. The preplanned appointment of successor trustees makes the transition smooth and generally quicker and less expensive than the appointment of a personal representative under a Will (in the case of death) or obstacles that a successor agent under a durable power of attorney may experience. In addition, the smooth transition to a successor trustee is private, does not usually involve the participation of the courts, and is no subject to obstacles that may present themselves under a Will if the nominated fiduciary is out-of-state.
What Are the Benefits of a Revocable Living Trust?
Assets in a revocable living trust are not considered part of your probate estate after your death and are distributed according to the terms of the RLT itself rather than by your Will.
Assets that pass under your RLT at your death are not subject to Virginia’s probate tax, which can save hundreds to thousands of dollars. Your trustee is not required to qualify before the clerk of court, omitting the considerable delay that can result from having to schedule a qualification appointment. Your out-of-state trustee does not have to pay for a surety bond as is generally necessary if your assets pass under a Will. This benefit can save your estate hundreds to thousands of dollars each year of administration. When assets pass via your Will, your personal representative may have to file an inventory and accounting with the commissioner of accounts (and pay what could be a hefty fee to do so); these reports are available for public inspection and challenge. Assets passing under your RLT are not subject to these requirements, potentially saving hundreds to thousands of dollars. In short, your successor trustee can assume the role more quickly and at less cost than if your assets passed via a Will.
In addition to the benefits your estate can receive after you die (which you will not personally enjoy), a trust can protect you during your lifetime in ways that a Will cannot because a Will has no power until you die. Specifically, a trust can enable a successor trustee to seamlessly take over and provide for continuity in providing for the administration of your assets, payment of your expenses, and support for you, your family, and other beneficiaries you wish to provide for if you are incapacitated during your lifetime. A thorough trust can avoid the need for the court to declare you incapacitated and appoint a conservator to manage your financial affairs.
Talk to a Trust Attorney Today
If you would like to learn more about trusts and whether one might be a good estate planning option for you, the attorneys at Promise Law are here to help. Call us today at (757) 690-2470 to schedule your attendance in our informative free seminar “The 7 Hazards to Your Estate Plan”.