September 2020

9 Questions Everyone Has About Revocable Living Trusts

1. What is a revocable living trust (“RLT”)?

An RLT is a powerful estate planning method that gives you complete control over your assets both during your life, and after. It is a legal entity that holds property for you and others.

2. If I die leaving only a Will, how will my estate be settled?

In Virginia, as in nearly all states, if you have a Will, without an RLT, the executor of your Will must file your Will with the probate division of the clerk’s office, file requisite forms and accountings, pay taxes on your estate, and distribute your assets to your beneficiaries. Probate costs, including attorney’s fees, court costs, appraisal costs, etc. can range between 5% to 10% of the value of the estate.

Also, the probate process is a matter of public record. This means that anyone, for any reason, can go to the clerk’s office and look at your probate records to see a list of assets, liabilities, and heirs.

3. What are the advantages of having an RLT?

An RLT allows you to have full use, enjoyment, and control over your property during your lifetime and still gives you the control to determine what happens to your estate once you pass away.

It is more difficult for your beneficiaries (or would-be beneficiaries) to challenge the decisions you make in your RLT, compared to a Will.

The RLT will also avoid probate so, the Trust can directly distribute assets to your loved ones. Your privacy is also protected by avoiding probate.

Your RLT can also help shelter your loved ones from taxes.

4. Are there disadvantages to an RLT?

As with all of your estate planning documents, you should frequently review them to ensure no changes are necessary (changes in named parties, changes in assets, etc.).

There may also be costs associated with transferring property into the name of the RLT for your existing assets (for example the cost of filing the deed with the clerk’s office). Good estate planning law firms will include such transfers in their services.

5. What property can I put into my RLT?

An RLT can hold bank accounts, life insurance proceeds, stocks, bonds, real estate, and personal property.

You may list your property in the schedule attached to your RLT. When the property’s status changes – such as when you sell your home or close out an account – it is appropriate to make a note next to the item on the schedule, include the date and what happened.

6. If I make an RLT, do I still need a Will?

Yes. The Will is important to ensure that any property you’ve left out of the RLT is “poured over” into your RLT once you pass away. If the assets outside of your Trust are less than a certain amount, your loved ones can still avoid probate when you pass away. A Will also enables you to name a guardian for your children.

7. What do I do after I set up my RLT?

When you set up your RLT, you can begin naming your assets in the Trust using the Trust schedule. If you are transferring title to the RLT, you will need to contact each institution to fill out the proper paperwork to change the title or beneficiaries of your property. You can do this for bank accounts, stocks, and insurance, for example. As for your real estates, new deeds have to be prepared and filed with appropriate local department of land records. A good estate planning law firm will do all of this for you.

You should also notify the Successor Trustee named in your RLT to advise that person of the Trust and their role in it. Also make sure you tell them where the original document is stored.

8. Where should I keep the RLT documents?

You should keep the original RLT in a fireproof file box or safe. Do NOT keep it in a safety deposit box at a bank because a safety deposit box is often inaccessible upon your death.

9. How can I create, change or revoke my RLT?

You can amend or revoke your RLT at any time, however bear in mind that changes must be done with the same level of formality (including signing process) as the draft of your original trust. Please contact PJI Law at (703) 865-6100 or trusts@pjilaw.com and we will be happy to work with you to update your Trust – or to create one, if you don’t already have one.

 

3 Reasons Why a Trust Protects Your Family Better than a Will Does

3 Reasons Why a Trust Protects Your Family Better than a Will Does

When most people think about estate planning, they assume their best or only option is a Last Will & Testament combined with some joint tenancy or transfer-on-death arrangements for their financial accounts. However, for a large majority of people, there is a superior method to estate planning that has existed for several hundred years and allows you to peacefully and privately transfer your wealth after you die to your loved ones. This method is an estate plan built around a Revocable Living Trust

Like a will, a trust addresses how your estate will be administered and disposed of after you die. However, there is an important difference. A will is a testamentary document signed by you that does not take effect until after you pass away. When you do die, the will must be qualified publicly before your local probate court as part of a potentially very expensive government administration.

Unlike a will, a trust is a private contract between you as creator of the trust and you as the manager of the trust assets. The trust is effective immediately upon you signing your trust agreement and will successfully manage your estate upon either your incapacity or death, so long as your assets remain titled in the name of your trust or the trust is designated as a beneficiary of your assets. And unlike what some may assume, trusts are perfect planning mechanisms for middle-class Americans, and you don’t have to be a Gates or a Rockefeller to afford this type of planning.

The three main advantages of estate planning through a revocable living trust over other basic estate planning options are the following:

  1. Avoids probate.
  2. Privacy.
  3. Flexibility
    3 Reasons Why a Trust Protects Your Family Better than a Will Does

Avoids probate.  Since a trust is a private contract which determines the terms of how its assets are to be managed upon your incapacity and death, there is no need to have a third party bureaucratic entity administering your estate via a potentially lengthy, expensive, and very stressful process called “probate”. The main reason for the probate process is to change title to property from a dead person’s name to that person’s living beneficiaries. With a trust, however, you already retitled your assets during your lifetime out of your individual name and into the name of your trust. Thus, when you die there are no assets owned in your individual name. Therefore, your estate has no reason to go through probate.

Privacy.  Because a trust is private and is administered privately, there is no need of the public process of probate. No need to have your assets sold at a public estate auction nor will your loved ones be bothered by people looking to take advantage of your estate because they could review your will and your list of assets at the probate court.

Flexibility.  As you have read, a trust is a versatile and flexible document. This flexibility is further apparent in how it can work with your transfer-on-death (TOD) accounts in leaving a lasting legacy to your children and grandchildren.

For example, suppose you have two adult children. One is very responsible, but the other not so much. Typically, most parents designate their children individually as the beneficiaries of their financial accounts without considering how they can protect their hard-earned wealth from a child’s creditors or future ex-spouse. Instead, you can establish trusts in your revocable living trust agreement for each of your children (and potentially grandchildren). The share you leave to each child resides in the trust created for them and protects such assets from that child’s creditors or ex-spouse. It just depends on the terms you want drafted. Therefore, you designate your trust as the beneficiary of your TOD accounts instead of the children in their individual names.

If you have more questions about whether a trust may be appropriate for you, give us a call at (703) 865-6100 or send us an email at estateplanning@pjilaw.com.