Revocable Trusts in Virginia
It is important for an individual who is planning their estate to understand the complexities of a revocable trust. Commonly, revocable living trusts are used in estate planning in order to avoid probate. Many individuals mistakenly believe that a revocable living trust can also be used to avoid taxes. However, such a trust is tax neutral.
In order to best understand the complexities surrounding the trusts and estate planning process and particularly recoverable trusts in Virginia, an experienced trusts attorney help is essential.
Generally, a revocable living trust is established and funded during an individual’s lifetime. This individual who funds the trust is called the grantor and, as such, the grantor often reserves the right to transfer assets into or out of the trust and to modify, amend, revoke, impart, or hold the trust in any way.
During the grantor’s lifetime, any assets in the name of the trust use the grantor’s tax identification number and any income that is generated or accrued is included on the grantor’s personal income tax return. After the grantor passes away, the trust is given a new tax identification number and any income that is generated or accrued is taxed on that trust tax identification number, often requiring trust fiduciaries to file separate income tax returns.
Many individuals also mistakenly believe that the creation of a revocable living trust in Virginia governs all assets of the grantor. However, such a trust only controls the assets that have been retitled into it. This includes such assets as bank accounts and property.
A point that is often misunderstood regarding estate planning, trusts, and probate relates to the naming guardians in an estate plan. An individual who has minor children will sometimes name a guardian in their last will and testament. This guardian is appointed to act in the event that there is a mutual catastrophe of the children’s parent or parents.
However, many individuals do not understand that this named individual cannot automatically act on the behalf of the children and serve as the guardian. Instead, they must first petition the court to be able to act as a guardian. Commonly a parent is concerned that, if they name a person to serve as guardian at a time when that person is fit to serve and, for some reason, they become unfit to serve, that person will still automatically be appointed guardian to the children. However, this is not the case.
Before a named guardian serves in that capacity, the court must first examine the best interests of the children and determine who should be appointed guardian to serve on behalf of the minor children until they turn 18 years of age.
In Virginia, while a revocable living trust is associated with a number of benefits and may relieve the burden of property management both during the grantor’s lifetime and after death, such a trust involves additional consideration. A revocable living trust in Virginia requires significant investments of time and money to create and to fund.
Moreover, assets within such a trust are subject to both income and estate taxes and the trust controls only those assets that have been titled into them. Because of such considerations, the decision to create and maintain a revocable living trust is one that must be made on a case-by-case basis, depending upon the needs, desires, and assets of the individual.