What is a revocable living trust?
A revocable living trust is a great way to protect your assets from the expenses associated with probate and estate taxes. Although many people believe that you have to have a large number of assets to need a trust, this is not the case. Instead, a trust acts as a substitute for a will.
How is a trust different from a will?
In a will, you can lay out your wishes for what happens after you die. You can leave money to charities, designate a guardian for your children, and make sure that someone special gets your family heirlooms.
However, in a trust, you can do all of that and more. Trusts allow you to state your wishes for what happens to your assets if you become unable to manage them on your own as well as after your death.
If you ever become incapacitated, the person (or people) you name as your successor Trustee will manage your assets according to your wishes as stated in your trust.
Will I lose control of my assets if I put them into a trust?
When you transfer assets into a trust, you are technically no longer the owner of those assets – the trust is. However, in a revocable living trust, the person who sets up the trust (the “Grantor”) and the person who controls the assets (the “Trustee”) are usually the same person.
Because you will be the trustee of your own trust, you will continue to have control over your assets unless you become unable to make your own financial decisions.
How do taxes work in a living trust?
Because you maintain control of the assets in the trust as both the grantor and the trustee of the trust, setting up a revocable trust will not affect your taxes.
What are the benefits of a revocable living trust?
The main benefit of a revocable living trust is that it allows your estate to avoid probate. Probate is the process through which all estates must go if there is no trust.
It is a public and often expensive process that involves an executor paying fees, taxes, and filing a series of documents with the court.
Because you do not technically own the assets in your trust, all of the assets in the trust are called non-probate assets. This means that having all of your assets in a revocable living trust allows your estate to avoid probate after your death.
Additionally, having a revocable living trust allows you to avoid estate taxes. As of 2017, the estate tax exemption is $5.49 million per person, or 10.98 million per married couple.
This means that most people do not need to worry about avoiding estate taxes. However, if this is a concern for you, a revocable living trust can allow you to minimize your estate tax liability.
Finally, as mentioned above, a trust allows you to state your wishes for your assets both after you die and in the event that you become incapacitated.
What is the difference between an irrevocable and a revocable trust?
Whereas the grantor and the trustee are typically the same person in revocable trusts, an irrevocable trust requires that the grantor and the trustee be different people. Irrevocable trusts are often used for Medicaid and veterans’ benefits planning.
Because the grantor can no longer manage funds that are placed in an irrevocable trust, most clients who are not worried about the prospect of long-term care move forward with a revocable living trust instead.
How do I transfer assets into my trust?
How you go about funding a revocable trust depends on what types of assets you have. For real estate, a deed must be prepared transferring the property into your trust. Transferring bank accounts typically requires going to the bank to set up trust accounts and close out individual accounts.
For other types of assets, such as stocks and bonds, transfer forms need to be completed and mailed to the company.
Do I need an attorney to help me set up a trust?
If you want to make sure that your trust is drafted properly and that the correct assets are transferred into your trust, hiring an attorney is critical. An experienced estate planning attorney will know exactly how to draft your trust to the best benefits of you and your family.
Who should be the trustees of my trust?
As is mentioned above, you will be the initial trustee of your trust. This allows you to have control of your assets while you have the ability to manage them.
However, you should also name successor trustees in your trust. These are people who can take over your responsibilities as trustee if you become unable to manage your finances. A successor trustee should be someone you trust implicitly, such as a responsible adult child or close family friend.
In some cases, a law firm or a bank can serve as trustee, although they charge a fee for their services.
What happens to my trust assets after I die?
In your trust, you will name beneficiaries who will receive your assets upon your death. If you do not wish for your beneficiaries to receive money and other assets outright, you can leave assets in trust for your beneficiaries.
Leaving assets in trust rather than outright can allow for creditor and divorce protection as well as preventing your beneficiaries from being disqualified from public benefits such as Medicaid and Social Security because they have received an inheritance.
If your beneficiaries are younger, you will want to leave your assets to them in trust until they are old enough to manage them on their own.
Do You Need To Speak With A Lawyer About Estate Planning?
If you need to speak with an experienced estate planning lawyer please contact us online or call our Virginia Beach office directly at 757.490.3500 to schedule your free consultation. We have offices throughout Virginia including Chesapeake, Newport News, Norfolk and Suffolk.