Frequently Asked Questions about
Estate Planning, Wills, Trusts, and Probate

• Should I create a "living trust" instead of making a will?

Instead of making any will? Definitely not. But many Virginians (generally those who have a particular desire for privacy, own property in several states, own businesses, anticipate disability, or otherwise need or want a high degree of personalization and flexibility in their estate planning) can and should consider using a revocable living trust combined with a “pour-over” will as the basic documents of their estate plans.

A Virginia revocable living trust is a special legal entity that you create by preparing and executing a formal trust document, declaring that you are holding certain property “in trust.” You retain the right to revoke the trust at any time, to take property back out of the trust, and to add new property to it.

Because the trust is revocable, it is treated largely as a fictional entity during your lifetime. You file your normal tax returns using your own Social Security number, and pay taxes on any trust income during your lifetime, and your creditors could seize assets from it to pay your debts.

At your death, however, the trust becomes irrevocable (since you are no longer around to revoke it), and takes on new life as a truly separate legal entity with a new tax identification number. Property owned by the trust bypasses probate administration, because it is deemed not to be owned by you or your estate at all. The successor trustee of your trust, rather than the executor of your estate, accounts for the trust property and distributes it to your beneficiaries. The Circuit Court (the same court that administers probate proceedings in Virginia) has authority to resolve disputes about the trust, and the trust usually remains liable for your debts (including any estate taxes). Unlike a will, however, a trust document of this type is not routinely filed in the Court's records for public inspection. And you can include provisions that will help safeguard trust assets from creditors and from spouses and other relatives of your heirs.

Many different trust arrangements may be created, each with differing legal and tax consequences. A carefully-drafted living trust can also serve to reduce or eliminate federal estate taxes. (Most tax benefits available from a revocable living trust, however, also may be obtained from a carefully drafted will.)

Some property shouldn’t be put in a living trust while you are still alive. For example, your tax-deferred retirement plan or IRA is already held in a trust, and you cannot transfer these funds into a living trust without first removing them from the existing plan (and paying income tax).

Any assets that you do not transfer into a living trust will go through the probate process (unless exempt from probate through some other mechanism). For example, if you do not transfer some of your individual bank or brokerage accounts into your trust, they will be probate assets after you die. If you do not transfer out-of-state real estate into your and your spouse’s trusts, probate likely will be necessary in that state after both spouses have died.

The major way that revocable living trusts can save on probate costs is that you, the settlor of the trust, with the help of attorneys, accountants, and financial advisors as required, have the ability to transfer most of your property to the trust while you are alive, instead of waiting for your executor to transfer that property directly to your heirs (or to a testamentary trust) after you die. In essence, you act as your very own “executor.”

Even if you create a living trust, you will also need a Virginia will to appoint guardians for your minor children and the property, if any, that they already own, and to direct the disposition of any assets not transferred into the living trust during your lifetime. This usually takes the form of a short “pour-over” will, so called because it “pours over” assets you own at death into your Virginia living trust, which remains the primary vehicle for disposition of your estate. Probate of the short “pour-over” will also serves to settle some claims of creditors and other claimants, just as with a regular will.

“The measure of choosing well is whether a man likes and finds good in what he has chosen.”  –Charles Lamb