Secure Your Legacy with Virginia Living Trusts- All to Know
Many states in the United States do not ascribe to strict estate tax or state inheritance tax laws. Virginia is one of these examples, but it follows the federal tax-related rules for estate planning.
It will be best for you to remember that when you prepare your estate plan and set up a living trust in Virginia. Besides, there are more things about preparing a living trust that Virginia-based residents should know about. In this guide, we cover such details.
In the U.S., federal estate tax rules apply uniformly across all states. As of the last update, estates with a value below the federal exemption limit (which changes annually) are not subject to federal estate taxes. Any amount above this exemption is taxed, with rates progressively increasing based on the estate's value. It's essential to consult the IRS guidelines or a tax professional for the most current rules and rates.
What is a living trust?
Living trusts, or "inter vivos" trusts, are legal documents people can create before death, listing the recipient for their estate and other assets. After the trustor (i.e., the trust's grantor or the one who prepares the living trust) dies, the named beneficiaries get the trust property. The trustee manages the trust in the meantime. This legally does not fall under the jurisdiction of probate laws, so it is preferable to a will.
Probate is the legal process of validating a will and distributing assets after someone's death. Living trusts, on the other hand, allow the transfer of assets to beneficiaries without going through probate. This can save time and legal fees and keep the distribution of assets private.
There are two main types of living trusts to consider.
Maximum people go for the revocable living trust type, where they can adjust the document terms anytime.
Typically, the grantor of the living trusts names themselves the trustee to assume control over the trust property. They can name someone else as the successor trustee- this individual will manage the trust if the trustor dies. Upon their death, the successor trustee will ensure the trust assets are distributed to the correct beneficiaries per the trustor's guidelines. Married couples with a revocable trust can have their surviving spouse as the successor trustee.
The irrevocable living trust is another type, but this one is non-modifiable once all parties sign the document. In the case of reducing overall taxation, the irrevocable trust type is more suitable. However, you will have no control over the trust assets after signing the documents.
Requirements for living trusts in Virginia
Before focusing on creating living trusts in Virginia, let's consider the requirements. Virginia follows the Uniform Trust Code. This contains a comprehensive list of estate laws for living trusts to ensure uniformity across states.
Uniform Trust Code: The Uniform Trust Code (UTC) is a comprehensive set of laws designed to standardize trust law across states that adopt it. It covers various aspects of trusts, from their creation to their administration. Virginia's adoption of the UTC ensures that its trust laws align with those of other UTC states, providing consistency and predictability.
In Virginia, the following requirements are necessary for one to set up a living trust following the Uniform Trust Code model:
Requirement 1: Having the capacity to create a living trust.
The grantor of the living trust, also known as the "settlor," "trustor," or "creator," is the one that sets up the terms in the trust document. They specify which estates and real property will go into the living trust. Plus, they assign the trustee to distribute assets to their living family members, friends, and organizations named beneficiaries after death.
Under the estate laws, the grantor must show they are mentally and physically capable of maintaining trust property and guidelines. If they have a power of attorney in charge of all legal matters, the latter must show verified approval from the grantor for setting up a living trust.
Requirement 2: Set a Power of Attorney
If a person is incapacitated and has previously granted power of attorney to someone, that representative would need to show that they have the authority to set up a living trust on the grantor's behalf, ensuring that the trust aligns with the grantor's wishes.
Requirement 3: Selecting a guaranteed beneficiary.
Virginia residents opting for a revocable trust must specify their beneficiaries. These can include closest relatives, a specific charity, or unattached individuals with a legitimate connection. Mention who the trustee will pass assets to after you expire in the trust document.
Requirement 4: Show verifiable intention for creating the trust.
The trustor needs to show that they want to create a living trust intentionally and play the equitable and legal titles, appoint the fiduciaries, etc. The state of Virginia requires the creator to show a written trust document mentioning their clear intent.
Requirement 5: Naming a specific trustee for the living trust.
People applying for revocable living trusts must assign a specific person who will perform as their successor trustee.
For married couples, the spouse typically becomes the trustee by default after the trustor's death. Irrespective of that, you must mention the person you select to maintain control over your estates under Virginia law.
Requirement 6: Avoid selecting the same person as the sole beneficiary and trustee.
Under the estate laws of Virginia, creators of living trusts cannot make the same person their sole beneficiary and sole trustee.
The trustee ensures that the estates and assets within the trust go to the right beneficiaries that the trustor chose. In the case of minor children, the trustee manages the revocable or irrevocable trust until they are of age. Then, they transfer assets to them.
Since the trustee is essentially a fiduciary for the trustor, they are obligated to manage the document clauses only. To ensure fairness, the Uniform Trust Code dictates that one person cannot control and get financial benefits from the living trust.
The advantages and disadvantages of establishing a living trust in Virginia
Here are the benefits and drawbacks that Virginia residents can anticipate when establishing a revocable trust:
| Advantages | |
|---|---|
| Avoiding Probate | Living trusts allow for the transfer of assets to beneficiaries without undergoing the probate process, saving time and legal fees. |
| Privacy | Details of the estate and asset distribution remain private, unlike wills, which become public records during probate. |
| Flexibility | Living trusts, especially revocable ones, can be adjusted as circumstances change. |
| Cost-Effective in the Long Run | While there's an upfront cost, living trusts can save money in the long run by avoiding probate fees and potential legal disputes. |
| Disadvantages | |
| Initial Cost | Setting up a living trust can rack up more costs initially compared to drafting a will. |
| Complexity | The process of transferring assets into the trust (funding the trust) requires ongoing management and can be complex. |
| No Guardianship Provisions | Unlike wills, living trusts don't allow for the appointment of guardians for minor children. |
| Maintenance Required | Assets acquired over time must be continuously transferred into the trust to avoid probate. |
How do you set up your living trust in Virginia?
The following are the main steps for creating living trusts in Virginia.
Choose your preferred trust type.
You should select the type of living trust that best suits your situation. For example, if you want more control over your trust directly, a revocable living trust will work for you.
If you need tax-sheltered benefits, an irrevocable trust is a better option. Moreover, consider whether you will opt for an individual or joint trust with your spouse.
Prepare an inventory of your assets.
Next, you should complete an inventory of all your owned assets, properties, accounts, etc. It would help to list your belongings and active accounts, including investments and retirement accounts. Then, review the list to categorize your assets into those that will go into the living trust and those you will leave out.
Assign a successor trustee and beneficiaries.
It would be best to assign a trustee for your living trust in Virginia who will distribute assets to your beneficiaries following your death. During your lifetime, you can manage your trust as the trustor and appoint another person as your successor trustee. Also, choose who you will pass the estates down to during this period as beneficiaries.
Prepare the trust document.
Take the support of an authorized estate planning attorney to formulate the document for your estate plan. You can prepare the living trust form using online programs.
Notarize the legal document.
Next, visit a notary public and sign the trust document under their supervision to finalize the process.
Add funds to the trust.
After verifying your document, you can add your properties to the Virginia Living Trust. Again, take the necessary legal counsel for this process.
Bottom Line
To avoid the intensive probate court process, living trusts are suitable to safeguard their assets for Virginia residents. However, federal estate taxes still apply.
People with estates worth high prices are eligible for federal estate tax exemption, though. If you have a moderate-sized or more enormous estate, you will likely get a better experience with living trusts in Virginia. Take the support of a qualified attorney to proceed with the steps.
FAQs
Virginia residents must pay federal estate taxes on estates in Virginia, although they can avoid most estate taxes. Note the average tax rate in Virginia is around 11.67%, with the marginal tax rate measuring about 22%.
Federal tax rates can differ for people based on factors like tax filing status, income, and other deductions. The average rate for federal tax rates is around 18-40% as of 2023.
People who own assets can get federal estate tax exemption in Virginia. This refers to a specific portion of their estate that is safe from tax obligations.
In 2022, the federal tax rate exemption for individual owners was $12.06 million each. For married couples, the amount was $24.12 million together since the exemption is portable for them. In 2023, the amount hiked to $12.92 million for individuals and $25.84 million for couples.
Revocable trusts are a better choice for tax filers if their estates' worth is lower than the federal estate tax exemption. If the value is higher, irrevocable trusts are safer.
People cannot place assets like retirement accounts, e.g., IRAs/401(k) plans, health savings accounts, medical savings accounts, or cash into living trusts.
The average time a trust can remain active is 21 years from the death of the last person who assembled or monitored the living trust in Virginia.
Living trusts are a better alternative to wills in Virginia since you can avoid probate with this process. Plus, it is more flexible than wills and assures more privacy protection.
However, unlike a will, the setup process and asset distribution can get complex during the grantor's lifetime.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Please consult a qualified attorney for advice on your specific situation.
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