Welcome to LivingTrusts 101, designed to help answer common questions you may have about trusts and its process.
What is a Living Trust?
A living trust or "inter vivos" trust by lawyers who want to sound smart, is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will. It is a contractual arrangement under which one person, called a trustee, holds legal title to property of a settlor for another person, called a beneficiary. This generally involves at least three people: (1) a settlor or grantor who creates the trust; (2) a trustee who administers and manages the trust and its assets; and (3) a beneficiary who receives the benefits of the administered property in the trust. This differs from a Will because your property is transferred automatically upon death.
What's the advantage of a trust?
Most clients use a revocable living trust to avoid probate, which can take up to a year or more to complete and cost hundreds to thousands . If you own property in another state, a living trust eliminates the need to probate that property in that state as well. This also means that your estate's assets and its distribution remain private, unlike wills submitted to probate, which become public record.
Some secondary benefits of a trust A living trust can immediately transfer management of your property if you become either physically or mentally incapacitated. This means you won't need to hire a lawyer when the time comes to distribute your estate nor go to the court to appoint a guardian or conservator. A living trust enables you to name someone you trust to manage trust property for young beneficiaries.
More complicated living trusts, such as an AB Trust, can reduce the federal estate tax bill for people who own a lot of valuable assets. Most people, though, don't need to worry about federal estate tax because it affects only estates worth more than $5 million.
How are Trusts created?
To make a living trust in Virginia, you
- Create the trust document, which says who will inherit trust property and names you as trustee (the person in charge).
- Sign the document in front of a notary public.
- Transfer your property, such as your house and car, to your name as trustee of the trust.
Are there disadvantages with making a trust?
Setting up the trust requires quite a bit of initial paperwork and is generally more expensive than a will. For example, you will need paperwork to transfer ownership of all the property you wish to place in the trust and this may include revising title documents. You may also run into some difficulty when you want to refinance property that is in your living trust and creditors do not have a final cut-off date for bringing claims against your trust like they would in probate.
Would I still need a will?
Yes, you always need a will. A will provides a backup plan for any property that doesn't make it into your trust. For example, if you acquire new property and don't add it to your trust before you die, that property won't pass under the terms of the trust document. You can use a will to name someone to inherit property that you haven't left to a particular person or entity in your trust. If you don't have a will, any property that isn't transferred by your living trust or other method (such as joint tenancy) will go to your closest relatives as determined by Virginia intestacy law.
When to not have a trust?
If the value of the entire personal estate is $50,000 or less, you may qualify for a small estate by affidavit, which is a much easier and shorter probate. For more click here. Note also that real estate from an intestate estate can be transferred by affidavit under certain circumstances under VA Code § 64.2-510.