Top 4 Reasons You Should Consider a Revocable Living Trust

A revocable living trust is an important estate planning tool that allows you to create clear instructions on how your property should be treated. We can explain estate planning basics, such as how this tool can be used as a part of your comprehensive estate plan.

Here are the reasons why you should consider a revocable living trust:

1. Avoid Probate in Virginia

Probate is a court-supervised process that formally qualifies a personal representative who helps wind up the estate of a person who is deceased.

There are many drawbacks of the probate process, including additional costs, taxes, fees, and delays. Many people are intimidated by this process. They also do not like the idea of their financial affairs being exposed to the public through a court administrative process that is triggered by the filing of a will with the probate court.

2. Plan for Incapacity

One of the most critical distinctions of a revocable trust vs will is that a will’s powers only exist if the person who prepared it passes away. It has no relevance if the person who writes it becomes incapacitated.

However, a trust allows for the immediate management of a person’s trust estate. The person who drafts the trust can manage his or her own trust assets anyway he or she wishes so long as this language is included in the trust.

If the person later becomes incapacitated, the successor trustee is authorized to take over the management of the trust assets and follow the instructions included in the trust in case the person passes away or becomes incapacitated. This provides for a seamless transition of trustee authority if the person who created the trust becomes incapacitated and needs someone to take over management of the trust assets.

3. Manage Out-of-State Property

If a Virginia resident owns real property somewhere outside of Virginia, the personal representative appointed to handle the Virginia probate case does not have legal authority with respect to that out-of-state property.

Instead, the personal representative is required to open an additional probate case in the state where the property is located. This ancillary probate proceeding adds additional costs, fees, and taxes.

4. Treat Your Provisions Like a Contract

A revocable living trust is a contract and governed by contract laws. A will is not a contract and is subject to the probate laws of the state where the person happened to be living at the time of his or her death. The probate laws of that other state may be significantly different than the state where the will was originally created.

For mobile clients who are considering moving to another state, a revocable living trust is usually a better bet because you can take it with you and be confident that your wishes will be carried out.

Contact an Experienced Trust and Estate Planning Lawyer

If you would like to create a trust that protects your family and your legacy, an attorney for wills and trusts at Golightly Mulligan & Morgan can help.

At Golightly Mulligan & Morgan, we listen carefully to our clients’ wishes and guide them through the laws that might impact these wishes. We take the information that we learn during confidential consultations to develop a customized estate plan geared to meet their needs.

In addition to preparing trusts, we also prepare wills and powers of attorney. We assist with all aspects of trust and estate planning and assist personal representatives with the probate process. If necessary, we can help clients have a guardian or conservator appointed if a loved one has become incapacitated.

If you would like more information on how to set up a living revocable trust, give us a call. We pride ourselves on making family estate planning approachable and understandable. We would love to have the opportunity to be of service to you and your family.

Revocable Trusts vs. Irrevocable Trusts

One of the most common questions we receive in our estate planning practice is, "What is the difference between a revocable trust and an irrevocable trust?" In this blog, we will provide a brief overview of the key differences between these types of trusts and give a few examples on why estate planners use them.

 

A revocable trust is often also referred to as a "living trust." Estate planning lawyers use revocable living trusts to avoid court supervised probate, which often allows for the efficient and expedient distribution of a decedent's property. As its name implies, a revocable living trust is easy to amend or revoke. Indeed, for all intents and purposes, assets owned by revocable living trust are handled much in the same way as assets owned by an individual. For example, while the creator of the trust is still alive, these types of trusts do not file their own tax returns because income flows directly to the person who created the trust, often called the "grantor."

 

On the other hand, an irrevocable trust is often used by estate planning attorneys to allow clients to either remove assets from the client's estate for estate tax purposes, or to provide added asset protection features. The primary concept behind an irrevocable trust is the fact that the person who set up a trust no longer has ownership and control over the assets placed inside the trust. Because such a trust may only be changed under very limited circumstances, the person who created the trust may avoid or mitigate estate taxes otherwise due on those assets when he or she dies. With the proper planning, a client may also be able to use an irrevocable asset protection trust to exempt trust assets from a tort creditor or in a bankruptcy proceeding.

 

Although irrevocable trusts have somewhat limited application these days due to the high estate tax exclusion (currently, estate taxes only hit individuals with more than $11,200,000), we do use these trusts for asset protection purposes. Conversely, we use revocable living trusts in our practice quite a bit to allow clients to avoid the probate process. You may read more about the probate process in our "what is probate" blog here on our website.

 

Thanks for taking the time to read this. Let us know if there's anything we can do to assist you with your planning. Email: info@golightlylaw.com or call at 804-658-3873.

Four Ways to Avoid Probate in Virginia

All of us would like to pass on a little something to our children or other loved ones. We save and save to make life a little easier for the people we care about.

Avoiding the delays and costs of probate is much easier than you think. Here are four common ways to keep more of your estate in the hands of the people who matter most.

My Top Four Ways to Avoid Probate in Virginia

As far as probate goes, Virginia is not a bad place to die. Virginia probate is relatively inexpensive and simple. However, probate requires publication of the will (and, therefore, a lack of privacy), and it can cause significant delays in getting assets to your beneficiaries. Read more to learn about my top four ways to avoid probate.

For starters, if you want to learn more about probate in Virginia, please see my probate blog here. If you understand probate and know you want to avoid it, below are some ways to do so.

Now, as you read this blog, keep in mind this basic rule: the only assets that must be probated are those assets owned solely by you when you die – that is, assets titled in your name alone. So, you may avoid having to probate an asset if someone else has an ownership interest in that asset at your death. Well, how do you do that?

Beneficiary Designations. For assets like life insurance and retirement accounts, you may often fill out a simple form with the applicable company holding the asset that states whom you’d like to receive the proceeds when you die. Simply call the customer service number and explain you’d like to review and possibly change your beneficiary designation. Many companies offer lots of flexibility in doing this. You can name primary and contingent beneficiaries, and can usually establish different percentages for different people if you’d like.

Transfer on Death (“TOD”) or Pay on Death (“POD”). Similar to making a beneficiary designation on insurance and retirement accounts, you can set up bank accounts to be transferred to another person at death (“TOD”). Likewise, you can set up brokerage accounts to be paid in the same manner (“POD”). In my experience, the terms “TOD” and “POD” are often used interchangeably. So, when you die, this type of asset is paid to your chosen person automatically without need for probate.

Joint Ownership. If you own an asset “jointly” with another person, that asset becomes the property of your joint owner at your death without having to go through probate. We usually see joint ownership on real estate deeds and checking accounts, usually, but not always, between married couples.

Living Revocable Trusts. To learn more about living revocable trusts, read my blog here. Basically, you create the living revocable trust during your lifetime, naming a trustee to manage the trust and selecting your beneficiaries who will receive the trust assets at your death. Once you transfer (or re-title) an asset in the name of your trust, you no longer legally own the asset – your trustee does. Remember, the only assets that get probated are assets you owned alone at death. Your living trust effectively removed assets from your probate estate, and your trustee can distribute those assets without having to go through the probate process.

Using these techniques can help you avoid probate and provide for a quick and effective method of transferring assets at death. Keep in mind, however, that probate avoidance should be part of your overall estate plan. There are potential pitfalls to this type of planning if you’re not careful. Call us today at 804-658-3873 or email us at info@golightlylaw.com and let us help you get your planning in order. Thanks for reading!

Will or Living Revocable Trust. Which One is Better for Me and My Family?

You may read a lot about living revocable trusts but still be unsure how those are different from a last will and testament. Well, let's discuss that and start with some definitions.

What is a Last Will and Testament?

A Will provides for passing property to one’s chosen beneficiaries and names a guardian for any minor children. It is executed with formalities according to state law. Upon the death of the “testator” (person who drafted the Will), the Will needs to go through a process called “probate.”

What are trusts?

In general, a “trust” is simply a legal arrangement where the trust itself owns property that is managed by a “trustee” for the benefit of one or more “beneficiaries.” Trusts can come in many flavors, often with funny sounding acronyms -- Irrevocable Life Insurance Trust (ILIT), Qualified Personal Residence Trust (QPRT), Qualified Terminable Interest Property Trust (QTIP), etc., etc.

What is a Living Revocable Trust?

Living Revocable Trusts are often used as a “will substitute” and pitched by some lawyers (and many non-lawyers) as a probate avoidance tool. The “settlor” (the creator of the trust) often serves as the initial trustee, using the trust property on which to live. If the settlor/trustee becomes incapacitated, a successor trustee takes over management duties. When the settlor/trustee dies, the successor trustee ensures that the trust property passes to the beneficiaries outside of probate.

Benefits to Using a Living Trust Plan.

Using a living trust plan can avoid probate and the cost of estate administration. The trust can also streamline handling real estate in more than the home state; that is, you do not have to hire an out-of-state lawyer to probate real estate owned in that other state or states. The living trust plan can increase privacy. Unlike the Will, the living trust is not recorded among the courthouse records because there is no probate of the living trust. The living trust can also appoint a successor trustee to take over if the settlor becomes incapacitated. Lastly, although the trust can still be attacked by a disgruntled beneficiary (or someone who thinks he or she should have been a beneficiary), the Will may be more susceptible to attack, primarily because the Will is recorded at the courthouse and requires more formalities when executing it than the trust.

Are there Downsides to Using a Living Trust Plan?

Creating living trusts can be expensive — costing as much as twice the cost of drafting the Will Plan. All trust assets need to be formally transferred into the trust, meaning preparation of real estate deeds, renaming and retitling bank accounts, etc. Contrary to popular belief, living trusts by themselves do not provide tax benefits; for tax purposes, more extensive planning is needed. Unlike the Will Plan, living trusts do not allow the settlor to pick a guardian for minor children. Lastly, in Virginia, the probate process is really nothing to be feared, and the increased costs, etc. of the living trust may not justify simply “avoiding probate."

Benefits to Using a Will Plan.

A Will is the only document in which one can pick a guardian for minor children. It also has low ongoing maintenance and oversight, and a relatively low cost to create. Lastly, using a Will Plan can shorten time periods for creditors’ claims against the estate.

Are there Downsides to Using a Will Plan?

A Will Plan is not a great way to handle estates including out-of-state property because your executor may have to hire a lawyer to deal with such property. For folks with privacy concerns, they should note that the Will is recorded in the courthouse, so it's there for the public to see. Also, standing alone, Will Plans have no effect if the testator becomes incapacitated (may need power of attorney too). Lastly, as mentioned briefly above, wills are generally easier to attack by an upset beneficiary (or someone cut out of the will) in the form of Will contests.

So, Which Plan is Better for Me and My Family?

How is this for a lawyer answer — “It depends.” As a general rule, for relatively simple Virginia estates with no real property outside of Virginia, a Will Plan will almost always be more cost-effective and efficient than a living trust plan. If one owns real property in several states, has serious privacy concerns about the will being recorded, and/or does not want court oversight and associated delays in administering the estate through probate, perhaps the living trust would work better. Do your research, get good advice, and avoid “putting the tool before the task.” Outline your goals and choose a plan that helps you achieve them most effectively.

What is Probate?

December 28, 2009

What is “probate”? Probate is basically the process of proving before the appropriate court that a document identified as a last will and testament is genuine. The advocate of the will, often the “executor” appointed in the will itself, presents the original of the will to the Clerk of the Circuit Court located in the city or county where the decedent lived at the time of death. The Clerk then reviews the document to confirm that it meets the requirements under Virginia law for a validly executed and properly proven will. If so, the will is received for recordation by the clerk.

How much does it cost? When you probate a will, you will be asked to estimate the value of the estate assets, including real and personal property, located in Virginia when the decedent died. For estates over $15,000, the Clerk will collect a probate tax based on a rate of 10 cents for every $100 of value. Some courts also charge an amount equal to 1/3 of the applicable probate tax. So, if the decedent’s estate had an estimated value of $500,000, the Virginia probate tax would be $485.00, plus 161.66 if the locality charges an additional 1/3.

How long does probate take? This question does not lend itself to a “one size fits all” answer. The length of time probate will take depends on, among other things, the size and complexity of the estate, the Circuit Court handling the matter, and the efficiency of the executor. As for certain “hard” deadlines, the executor must file an inventory of assets with the “Commissioner of Accounts” within four months from the date on which they qualified as executor. An accounting (basically a detailed check register) must be filed within sixteen months from the qualification date. Basically, probate takes as long as it takes the executor to wind up the estate, identifying and paying just debts and distributing the remaining assets among the beneficiaries as spelled out in the will. The real point of the inventory and accounting process is to protect the beneficiaries. The Commissioner of Accounts only job is to ensure that the executor is properly doing his or her job, holding that person accountable for properly disposing of property to appropriate beneficiaries as the testator requested.

So, all in all, probate in Virginia is designed to facilitate the orderly winding up of a decedent’s estate. The process ensures that the executor carries out his or her responsibilities, and it also serves to protect beneficiaries from executor’s mistakes or, in rare instances, fraud. With a tax rate of 10 cents for every $100 over $15,000, only a small fraction of the estate goes to the court in the form of a probate tax, leaving almost all of the estate, after payment of just debts, to the beneficiaries.