A living trust is an estate planning tool that can simplify the passing on of your assets to your family. Each state tends to have its own rules as to how you can set up your own living trust as a resident. So if you live in Virginia, our detailed guide will go over whether or not a living trust is right for your situation, how you can create one and the costs and taxes associated with doing so. While it’s possible to set up a living trust and plan your estate yourself, it can be a good idea to work with an estate planning attorney and a financial advisor to get your finances and affairs in order.
How to Create a Living Trust in Virginia
There is a six-step process for making a living trust in Virginia:
- Select a type of trust: As you might expect, anyone who’s single should go with a single trust. On the other hand, those who are married should create a joint trust, which allows property to be divided up on an individual and joint basis.
- Inventory your assets and property: You’ll need to create a comprehensive list of everything you own. This not only covers physical items like your home and vehicle, but also assets like cash and investments. Start thinking about who you want to leave certain assets to.
- Choose a trustee: This is an extremely important decision, as this person will be responsible for facilitating inheritances to your beneficiaries. You can make yourself the trustee, but don’t forget to name a successor trustee who can take over when you pass away (this is the trust equivalent of the executor of a will). At this point, you should know who will inherit what.
- Put together your trust document: There are many online programs that can walk you through the creation of a living trust, or you can work with an estate planning lawyer.
- Visit a notary public: You’ll need to sign your living trust in front of a notary public.
- Fund your trust: At this point, it’s time to officially place your property within the confines of your living trust. Again, an estate planning lawyer would be valuable for this step.
What Is a Living Trust?
In its simplest form, a living trust is a legal arrangement that allows someone to hold their assets and property in a single place while they’re still alive. You may sometimes hear a living trust referred to as an “inter vivos” trust, which is Latin for “between the living.” A typical living trust might include things like:
- Your home and other real estate
- Jewelry, furniture and other valuable items
- Life insurance policies and non-qualified annuities
- Investment and brokerage accounts without a beneficiary
- Bank accounts
- Money that’s owed to you
Revocable vs. Irrevocable Trusts: Which Is Better?
Living trusts come in “revocable” and “irrevocable” variations. The most common choice is the revocable living trust, as it allows the owner to add and remove property whenever necessary. On the other hand, an irrevocable living trust makes property and assets within it unmovable. To alter these contents, you must get the permission of each person named in the trust. Whether a revocable or irrevocable trust will work better for your estate plan depends on what you need a trust to do for you.
A revocable trust might be preferable when,
- The value of your estate is less than the federal estate tax exemption
- You want to retain the use of and control over your own assets without restriction after establishing the trust
- You want the transfer of your assets to your heirs to be private and avoid the probate process in any state where you have assets
An irrevocable trust might be preferable when,
- The value of your assets exceeds the federal estate tax exemption ($12.06 million in 2022 for a single filer, $24.12 million for a couple filing jointly)
- You don’t mind giving up use or control of your own assets after establishing the trust
- You want to protect your assets from creditors, and since assets in an irrevocable trust aren’t considered available to you, they are protected from certain creditors and lawsuits
How Much Does It Cost to Create a Living Trust in Virginia?
There is no one-size-fits-all answer to the question of how much it’ll run you to create a living trust. Of course, getting an estate planning lawyer specializing in estate planning won’t come cheap. Charges vary from lawyer to lawyer based on their fees, as well as the complexity of your overall estate. In the end, expect to pay $1,000 or more.
If you decide to go the DIY route, your costs will likely fall to around $200 to $500, depending on which online program you prefer. Taking such an important process into your own hands has inherent dangers as well, so make sure you’re okay with these risks and prepared to educate yourself on the ins and outs of trusts.
Why Get a Living Trust in Virginia?
The main benefit of a living trust is that it essentially allows your family members to skip the long and arduous probate process when you die. For context, probate is a legal procedure that confirms information within a will. This often involves a deep dive into your finances, which can end up turning personal matters into public record.
The Uniform Probate Code was created to help simplify the aforementioned process, but Virginia has not adopted it. As such, Virginia residents may be better off creating a trust rather than leaving their estate to the mercy of the probate system.
Trusts have other benefits as well. Let’s say you want to leave a valuable item or a sum money to a family member who’s currently a minor. Unlike a will, a living trust lets you keep the control of the property in the hands of a trustee until the heir is of age.
Who Should Get a Living Trust in Virginia?
While living trusts are commonly thought of as tools for the rich, they can be valuable additions even for estates of a moderate size. However, if your estate is worth less than $50,000, you might be able to skip the trust and just create a will. That’s because Virginia law employs a simplified probate process for any estates below that limit. A simplified probate process will be relatively painless for your heirs, so unless there are special circumstances at play, you might be better off just creating a will.
Don’t forget to take into account the cons of living trusts before you begin making one. For starters, there’s the cost of creating one – these are legal instruments and thus best created with the help of an attorney, which won’t be cheap. You should also note that there’s a significant window of time where living trusts can be legally challenged by those involved.
Living Trusts vs. Wills
Just because you have a living trust in place doesn’t mean a will isn’t necessary. More specifically, a will can cover any property that’s not considered to be part of your trust. A will has a number of other features, allowing you to:
- Name an executor
- Provide instructions on how to pay taxes and debts
- Establish guardianship for children who are minors
- Select managers for children’s property
Here’s a breakdown of what a will and a living trust can help you do:
|Living Trusts vs. Wills|
|Names a property beneficiary||Yes||Yes|
|Allows revisions to be made||Depends on type||Yes|
|Avoids probate court||Yes||No|
|Requires a notary||Yes||No|
|Names guardians for children||No||Yes|
|Names an executor||No||Yes|
Living Trusts and Taxes in Virginia
As of 2019, Virginia does not impose an estate tax or an inheritance tax on its residents. Therefore, the creation a living trust in Virginia is unlikely to affect your financial and tax situations at all. In fact, a living trust almost never influences taxes, even in states that have an inheritance or estate tax.
The federal government does institute its own estate tax, though. The limit rose in 2022, so now only estates worth more than $12.06 million ($24.12 million for couples) must file an estate tax return.
Without the presence of the Uniform Probate Code in its state laws, Virginia residents may find it worthwhile to get a living trust rather than subject their estate to probate. While this can be a complicated process and likely calls for the involvement of an estate planning attorney, it’s still a good idea for estates larger than $50,000.
Tips for Planning Your Estate
- Getting your finances in order to create an estate plan can be complicated, but a financial advisor can help. Luckily, finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The tax situation surrounding an estate plan is different in every state. To learn more about the rules in Virginia, check out our overview of the inheritance laws here.
Photo credit: ©iStock.com/Piotrekswat, ©iStock.com/drnadig