Virginia Revocable Living Trusts 101
If you are considering putting together your estate plan, chances are you may have considered whether a revocable living trust might be something you should look into.
Why Use a Revocable Living Trust?
In one sentence: it can help you avoid probate. That being said, probate is not the end of the world. And there may be circumstances where abbreviated probate procedures (like those available for small estates) are available that can make it less of a burden. That being said, on average, probate tends to be more complicated, more expensive, and take longer to transfer assets to your heirs than using a revocable living trust.
Additionally, a revocable living trust can help with incapacity planning. Consider that a will only transfers assets when the maker of the will dies. Before death, a will has no function.
With a trust, it is possible to name successor trustees to manage your assets in the event you are no longer able to do so (either for health reasons or age-related decline). Used together with a power of attorney that appoints another to help manage health care, this type of planning can help avoid the need for costly and complicated court proceedings for guardianship and conservatorship down the road.
Finally, a revocable living trust is private. Because the management of the trust does not require involvement from the court, the trust's affairs are not public record. As a result, the terms and administration of the trust can remain private.
Funding the Trust
Once a trust is created, the general idea is to transfer assets into the trust. This process is called funding. For some assets, like checking or savings account, this can simply involve changing the title on the account to reflect the trust's ownership. For other assets, like real estate, a deed may need to be prepared. Your attorney can help you ensure that your assets are appropriately transferred.
Additionally, most estate plans will include a pour-over will. This is a will that will, upon the death of the maker, transfer any assets into the trust that have not already been transferred.
What About Taxes?
During the life of the grantor, a revocable living trust is not required to obtain its own tax-ID number and is disregarded by the IRS. During this time, the grantor's social security number is used and the trust does not file a separate tax return during the grantor's life.
Once the grantor (or grantors) have passed, the trust will obtain its own tax-ID number and separate tax returns are filed by the trust. This is similar (but not identical) to the process in probate using a will where the estate obtains its own tax-ID number and may have to file its own returns.
Christopher Mays
Virginia Estate Planning and Elder Law Attorney