What Living Trusts Cannot Do in Virginia
Many people worry about what will happen to their property after they are gone. The process of planning for what happens to your property after you pass away is referred to as estate planning.
A living trust, which for the purposes of this article, refers to a revocable living trust, is one of the most popular estate planning tools in use today. The term “revocable” refers to the fact that the Grantor is free to revoke or change the terms of the trust. Similarly, the term “living” refers to the fact that these trusts take effect while the grantor is still alive.
A living trust is a legal arrangement where one party, known as the Grantor, gives property to a second party, known as the Trustee, who will manage this property for the benefit of a third party, known as the Beneficiary. Most often, the Grantor is also the Trustee during their lifetime.
What Living Trusts Can Do
The primary advantage of a living trust is that it can make it easier to avoid the delays and costs associated with probate administration after a person dies. This is because property transferred into a living trust before death avoids the probate process.
Probate administration is the legal process during which a deceased person’s Will is validated, their property is inventoried, their debts are paid, and the remaining assets are distributed to the deceased person’s heirs. Probate can be time-consuming and expensive and is generally considered a nuisance.
Along with probate avoidance, a living trust allows you to plan for periods of incapacity during your lifetime. This is achieved by designating successor trustees who can step in to manage your financial affair when you are incapable of doing so yourself.
A living trust can do many other things as well, such as allow you to make special arrangements for beneficiaries with disabilities, poor spending habits, financial inexperience, or addictions to drugs, alcohol, or gambling.
Limits on What Living Trusts Can Do
Because of all the things you can do with living trusts, they are considered by many to be the best estate planning tools for the distribution of one’s assets. But as useful as living trusts are, there are some limits on what they can do:
Work for assets that are not in the trust
For a living trust to work as intended, you must transfer your property and assets into the trust. To transfer assets into your living trust, you must change the title documents to your assets to reflect the trust as the new owner.
Protect your assets from creditors
The same access and control over the assets held in a revocable living trust that allows you to change or revoke the trust also allows creditors and lawsuits to access the trust assets to satisfy any outstanding debts you have (assuming, of course, they go through the correct legal formalities to attach against you).
Provide any tax benefits
Assets held in a revocable living trust can and will likely be included in your taxable estate since you maintain full control over them during your lifetime. An irrevocable trust (that cannot be changed or revoked) may help you minimize or avoid estate taxes since the trust assets do not count toward your estate. However, an irrevocable trust is far less flexible, and far more costly, than a revocable trust, and allows you much less control over the trust assets.
Name guardians for your children
In Virginia, a living trust cannot appoint guardians for your minor children. Only a Will can do this. If you die with no Will, a court must appoint someone to care for your minor children.
Express your wishes regarding emergency medical care and end-of-life treatment
A living trust is different from a living will. Living wills (also called advance directives) express your wishes about being kept alive if you become gravely injured, terminally ill, or seriously incapacitated. You can also use a durable power of attorney for health care to express your preferences for medical treatment prior to becoming incapacitated.
Protect your assets from Medicaid spend down
Because you have complete access and control of the assets in your revocable living trust, the trust does not affect your eligibility for Medicaid. Nor are the trust assets protected from having to be “spent down” for you to qualify for Medicaid.
Consult with a Virginia Estate Planning Attorney
A living trust can provide a much more efficient and flexible way to distribute your property to your heirs upon death. But it is not without its drawbacks.
If you are thinking about setting up any trust in Virginia, it is important that you consult with a knowledgeable Virginia estate planning attorney, who can let you know if and what kind of trust you need to meet your estate planning goals. Contact our law firm today at (703) 553-2577 or use the contact form to learn how we can help.
The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.