In a previous blog, we explained the types of trusts in Virginia, illustrating the importance of trusts through the story of John and Mary Thompson, a Richmond couple who realized that their estate planning documents were not complete without the inclusion of a trust.
The trust attorneys at PJI Law in Richmond understand that planning for your future and protecting the interests of your loved ones can feel overwhelming. We also recognize that each individual and family should have a plan tailored to their unique estate planning needs and goals.
Have you been searching online for “how to create a trust?”
This blog, from skilled estate planning attorneys in Virginia, delves into creating a trust and why it is often a viable solution for individuals who want to distribute assets smoothly and help their heirs avoid the unpredictability of probate.
What Is a Trust?
A trust is a legal arrangement where a person, known as the grantor, transfers their assets to a named trustee to manage for the benefit of their designated beneficiaries. While this might sound complex, a trust allows for flexibility, control, and protection of your assets while offering you and your family numerous benefits. Assets can include money and property and once the grantor transfers these assets into the trust, the trust becomes the owner of these assets. The trustee’s role is to manage the assets and distribute them to the heirs indicated in the trust according to its terms.
Benefits of Creating a Virginia Trust
Creating a trust and transferring assets into it offers several benefits.
1. Bypass Probate
As we shared in our blog, What You Need to Know About Probate in Virginia, the public probate process can be lengthy and complex. A trust allows you to bypass probate so that your loved ones receive their inheritance faster and with less hassle.
2. Privacy
While most people have will-based estate plans, wills become public records during the probate process, meaning anyone can access the details. Trusts, on the other hand, are private legal documents.
3. Control and Flexibility
Trusts allow you to set conditions for how and when to distribute your assets. For example, you can leave instructions that minor children or grandchildren only receive their inheritance when they reach a certain age.
4. Protection from Creditors
Assets in certain types of trusts, like irrevocable trusts, often enjoy protection from creditors, helping to secure your family’s finances for the next generation.
5. Minimizing Family Disputes
Clearly outlining asset management and distribution via a trust can help reduce misunderstandings and disputes among family members.
Virginia Laws Governing Trusts
The Virginia Uniform Trust Code (UTC) primarily governs trusts in the state. These laws provide a clear framework for creating, administrating, and enforcing trusts.
Key Sections of the Virginia Code to Know:
- § 64.2-700 to § 64.2-808 of the Virginia Uniform Trust Code outlines the basic requirements and duties related to trusts.
- § 64.2-763 addresses the fiduciary duties of trustees, emphasizing their legal obligation to act in the best interest of the beneficiaries.
To comply with these laws, consult knowledgeable Richmond estate planning lawyers.
Types of Trusts Available in Virginia
Virginia offers various types of trusts to meet different needs, including:
1. Revocable Living Trusts
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- The grantor maintains control and can modify or revoke the trust during their lifetime.
- Ideal for avoiding probate while retaining flexibility.
2. Irrevocable Trusts
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- These trusts cannot be modified or revoked once established.
- Offer significant tax benefits and enhanced creditor protection.
3. Special Needs Trusts
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- Designed to provide for a beneficiary with a disability without affecting their eligibility for public benefits like Medicaid or Supplemental Security Income (SSI).
4. Charitable Trusts
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- Intended to benefit a specific charitable organization or cause.
5. Testamentary Trusts
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- Created through a will and only activated upon the grantor’s death.
- These trusts do not bypass probate but are useful for passing down assets under defined conditions.
Click here for a complete list. As experienced attorneys know, each trust has unique advantages, and the correct choice will depend on your goals and circumstances.
Steps to Creating a Trust in Virginia
Creating a trust requires careful planning to protect and distribute your assets as you wish.
1. Determine Your Goals
Before you begin, think about what you want to achieve. Are you trying to avoid probate? Minimize taxes? Protect assets for future generations? This clarity will guide the process and help with decision-making.
2. Draft Your Trust Document
Your trust must comply with the Virginia Uniform Trust Code.
- Name the Grantor
The person who creates the trust and transfers the assets.
- Name the Trustee
Appoint someone you trust to manage the assets and confirm that they understand their responsibilities.
- Identify Beneficiaries
Designate the individuals or organizations that will benefit from the trust.
- Define Conditions
Specify how and when to distribute assets and any restrictions based on your goals.
- Name a Successor Trustee
As the saying goes, death and taxes are the two things we can count on in life. You want to name a successor trustee who can handle trust administration if your original trustee passes away or can no longer fulfill their duties.
3. Execute the Trust Agreement
Virginia requires that the trust document be signed and notarized in most cases. This process formalizes the legal creation of your trust and ensures its enforceability.
4. Fund the Trust
A trust can only achieve its purpose if you fund it. Funding a trust involves transferring ownership of your assets (such as property, bank accounts, and investments) to the name of the trust or listing the trust as the beneficiary of your assets upon your death. If you want to spare your family the hassles of the probate process and facilitate a smoother estate administration, you must take the time to transfer funds into the trust.
5. Maintain and Manage the Trust
Once the trust is established, it requires ongoing attention. Responsibilities include updating the trust if circumstances change, managing trust assets, and ensuring timely distributions. Virginia laws require that trustees act in the best interests of the beneficiaries, maintaining transparency and avoiding self-dealing.
Common Mistakes to Avoid When Establishing a Trust as Part of Your Estate Plan
Creating a trust can provide immense peace of mind, but as our attorneys know, common mistakes in the process can undermine your intent.
1. Failing to Define Beneficiaries and Conditions Clearly
State your wishes explicitly to prevent ambiguity.
2. Neglecting to Fund the Trust Properly
Transfer funds into the trust. Without funding, it is just a document.
3. Overcomplicating Trust Terms
Keep it simple to achieve better outcomes and avoid overly restrictive conditions.
4. Overlooking Updates
When life events such as second marriages, death, divorce, or the arrival of a new family member occur, keep your trust up to date to align with these changes.
Frequently Asked Questions About Virginia Trusts
How does a pour-over will work with a trust?
A pour-over will is a special type of will that works alongside a revocable living trust. It transfers any remaining funds that were not transferred into a trust during your lifetime or automatically upon your death, to be managed in accordance with the trust’s terms.
Can I place retirement accounts into a trust?
You can place certain retirement accounts into a trust, but it requires careful planning due to tax implications and legal considerations. Accounts like IRAs, 401(k)s, and other tax-advantaged accounts are typically not directly transferred into a trust during your lifetime to avoid triggering immediate taxation. Instead, you can name the trust as the beneficiary of the retirement account. This approach allows the funds to flow into the trust upon your passing, enabling you to control the distribution of assets to your beneficiaries. However, you must structure the trust properly to avoid unintended tax consequences such as accelerated distributions or higher tax rates for beneficiaries.
For these reasons, consult a knowledgeable estate planning attorney.
How does trust administration work?
Trust administration involves managing and distributing the assets of a trust according to its terms and in compliance with state laws.
- Acceptance of Trustee Role: The trustee, named in the trust document, formally accepts their role and responsibilities.
- Understanding the Trust Terms: The trustee reviews the trust document to understand their duties, the beneficiaries, and the distribution instructions.
- Inventory of Assets: The trustee identifies and gathers all trust assets, such as real estate, bank accounts, investments, and personal property.
- Notification of Beneficiaries: Virginia law requires the trustee to notify beneficiaries of the trust’s existence and their rights.
- Management of Assets: The trustee manages the trust assets prudently, preserving and investing them appropriately, following the “prudent investor rule.”
- Payment of Debts and Taxes: The trustee settles any outstanding debts, expenses, and taxes the trust owes.
- Distribution of Assets: The trustee distributes the trust assets to the beneficiaries according to the terms of the trust.
- Record-Keeping and Reporting: The trustee maintains detailed records of all transactions and may need to provide beneficiaries with periodic accountings.
What does my financial institution require from a trust?
Each institution may have its own policies and procedures but generally requires you to provide a copy of the trust document or a certification of trust, a summary document confirming the trust’s existence without revealing all its terms. The institution will verify that the trustee has the authority to manage the account or transfer assets into the trust and retitle any accounts you transfer into the name of the trust, e.g., “Julianna Rose, Trustee of the Julianna Rose Living Trust.” If you’re naming the trust as a retirement or life insurance account beneficiary, your institution may require specific forms to update the designation.
Contact PJI Law to Discover How Our Trust Attorneys Can Assist You
At PJI Law, we know that establishing an estate plan is not a one-time transaction. We build lasting relationships with our clients because we want their plans to grow and adapt with them through every significant life event. Our experienced estate planning lawyers and legal staff will guide you every step of the way, from selecting the correct type of trust to structuring it properly and ensuring it serves your family’s needs in years to come.
Whether you need a living trust, a special needs trust, or any other type of trust, our personalized services will give you and your loved ones peace of mind. Contact PJI Law at (804) 653-3450 or complete our online form to schedule a consultation for personalized service and attention.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.
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4108 E Parham Rd,
Richmond, VA 23228
(804) 653-3450
https://www.pjilaw.com/
