Basics Of Estate Planning In Virginia: Wills
In Virginia, a will is a legal testamentary document that outlines the distribution of assets and addresses matters immediately following an individual’s passing. Typically, a will specifies the payment of last debts and expenses and then directs the allocation of the remaining estate — whether to a surviving spouse, children, or other beneficiaries, depending on the individual’s preferences.
Wills come into effect only after an individual has passed away. Although a critical tool for directing the distribution of assets, it does not offer protection for assets during an individual’s lifetime. If your goal is to safeguard assets while you are still alive, the discussion you would need to have should center on establishing a trust. Unlike a will, a trust has the capacity to address scenarios that may arise during your lifetime and can provide a more comprehensive framework for protecting your assets.
The two primary types of trusts often considered are revocable and irrevocable trusts. A revocable trust, as we will explore shortly, offers flexibility and is commonly used for its versatility. On the other hand, an irrevocable trust, while subject to additional rules, can provide heightened protection of your assets, albeit with increased complexity.
Basics Of Estate Planning In Virginia: Revocable Trusts
A revocable living trust serves as a legal entity created by an individual, known as the settlor, who, more often than not, also assumes the role of the trustee — the person governing the trust. This trust structure offers a level of protection against external entities attempting to access the settlor’s assets while they are alive. While it’s not entirely foolproof, a revocable living trust provides a valuable layer of safeguarding.
The process begins with the creation of the trust document, a task that any attorney can assist with. The document itself can vary in length, ranging from approximately 25 to several hundred pages, depending on the specific requirements and objectives outlined by the settlor.
The effectiveness of a revocable living trust is contingent upon actually funding it. Not doing so is essentially just having a piece of paper with writing on it. Funding involves the physical act of transferring assets into the trust. A revocable trust even has its own employer identification number (EIN), a federal government-provided identification number similar to a social security number. This underscores the trust being an entirely separate entity, capable of holding assets and executing actions based on the directive of the trustee.
Inclusions And Exclusions In A Revocable Living Trust
A revocable living trust provides the flexibility to include virtually any type of asset, with the primary aim often being to simplify the estate distribution process for heirs. This can spare them from the difficulties of managing an estate.
While the range of assets that can be included is extensive, certain factors may shape your decision-making process as to what to include in yours. One asset type that might introduce unnecessary complications is an ongoing business or corporate asset. Attempting to add one to a trust can add layers of complexity to the trust administration, with the burdens potentially outweighing the benefits. As such, I generally advise my clients against including any in their trusts.
Another aspect to bear in mind is assets with designated beneficiaries. While it’s possible to exclude such assets from a revocable trust, doing so means that these assets will not pass through the estate, sidestepping the probate process. However, relinquishing control to the trust allows the settlor to govern the asset’s fate even after they’ve passed away.
Designating your children as beneficiaries of your bank accounts is a perfectly fine thing to do. Yet, if you desire to exercise control over how and when your beneficiaries can access those funds — perhaps to ensure responsible financial management — it might be better to place the asset in the revocable trust; this way, the trust’s provisions can dictate the terms and conditions of the distribution, providing a structured and controlled approach that aligns with your intentions.
Common Uses of Revocable Trusts
In my practice, there isn’t a specific type of revocable trust that stands out as more common than others. The choice of what type of trust to use is particular to your personal circumstances and goals.
One prevalent use of revocable trusts in my practice revolves around matters pertaining to children. Many parents understandably seek to care for their children beyond their own lifetime, and a revocable trust serves as a powerful tool in achieving this goal. This is particularly true in cases where a child has special needs, such as Down syndrome.
For parents of a child with special needs, ensuring their financial security without jeopardizing government benefits like Medicare or Medicaid is a huge concern. Placing the child’s assets from the estate into a revocable trust is one solution. By doing so, these assets don’t count against the child when applying for essential government benefits. This strategic use of a revocable trust empowers parents to provide ongoing support for their children while navigating the intricate landscape of government assistance programs.
For more information on The Basics Of Estate Planning In Virginia, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (703) 775-1678 today.