When it comes to planning your estate in Virginia, you have options like creating a will, transferring property, making lifetime gifts, or establishing a trust.
While all of these options could benefit your estate, creating a Virginia trust stands out as one important solution to your estate planning needs.
There are many trusts to choose from in Virginia, with qualities developed to best suit your estate planning needs. Here, you will find a list of Virginia trusts that you may use as part of your estate plan.
1) Virginia Living Trusts
Living trusts are one of the simplest types of trust to understand.
In a living trust, you establish the trust while you’re alive, then, after your death, the trust becomes active. Property entering a trust must be transferred by title and deed, in addition to being listed as a trust asset.
There are two types of living trusts: revocable, and irrevocable.
Revocable Living Trust
A revocable living trust is a trust you are able to terminate, change, or amend during your lifetime. You retain your ability to manage your trust and your trust property.
When you establish your revocable trust, you outline which estate assets are included in the trust. Those assets are then transferred to the ownership of the trust, which remains under your control.
However, your trust assumes legal ownership of those assets.
You name your trustee, beneficiaries, and trust property division in your trust documents. You can change these designations during your lifetime. Your trust decisions are private, and since they are protected from probate, you are not subject to release the detailed terms of your trust.
Ultimately, your revocable living trust is established to name who will inherit your trust property. This method allows you to manage your property in the same way as a will. However, by using a trust you avoid probate on your estate, saving time and money for your beneficiaries.
Keep in mind that with a revocable trust, you still hold a majority interest in your trust property. Unless you have transferred ownership of the property to your beneficiaries by title or deed, your property is not fully entrusted to your beneficiaries.
Your property is protected from estate taxes and probate. You will need to ensure that there are no transfer issues that arise at the time of distribution.
Irrevocable Living Trust
By contrast, an irrevocable living trust is a trust you are not able to terminate, change, or amend during your lifetime. Your establishment of an irrevocable living trust is legally binding for you, your chosen trustee, and your named beneficiaries.
Similar to the revocable living trust, an irrevocable living trust assumes legal ownership of the property it covers. However, the trust assets are no longer accessible by you, and you cannot withdraw, contribute, or change the terms of your irrevocable trust.
Your irrevocable trust property is secure because you transfer ownership to your beneficiaries while you’re still alive. However, your beneficiaries do not receive access to the inherited property during your lifetime.
This trust exempts your property from your estate, possibly eliminating any gift taxes. Additionally, you avoid probate proceedings on the estate property covered by the trust.
2) “Ongoing” Trusts
Ongoing trust are just as the title suggests – ongoing. These types of Virginia trusts are established during your lifetime, take effect upon your death, and remain in effect until the end of the trust term.
Qualified Terminable Interest Property Trust (QTIP)
A QTIP trust allows you to financially provide for your surviving spouse, while also designating your asset beneficiaries and divisions. The accrued interest and principal of the trust assets are also passed on to your surviving spouse, supplying additional financial security.
The interest and principal payments are made in increments to your surviving spouse for the rest of their lifetime. You are also eligible for the marital deduction, or tax exemption on the transfer of estate property to your spouse.
With this trust, your property is protected and transferred to your beneficiaries upon your death. However, this trust goes a step further to ensure your surviving spouse is financially secure in your absence.
In Virginia, you have the ability to plan a trust to care for your pet. You establish the pet trust during your lifetime, which remains active from the time of your death until the time of your pet’s death.
The funds of your pet trust are used for the care, maintenance, and expenses of your pet’s needs. You name your trustee, your pet’s guardian (if separate), and the beneficiary of the trust’s possible remainder.
Your trustee manages the financial estate of your pet, while your pet’s guardian inherits the responsible care of the pet. Your additional beneficiary inherits the remaining trust property at the time of the pet’s death.
The pet trust assumes the financial obligations of the pet’s care, such as medical and substantive expenses. The trust also covers the services and expenses of your pet’s death.
Your trustee and guardian are compensated by the trust as incentive to properly care for your pet.
A “spendthrift provision” in a trust restricts the beneficiary from transferring estate property interest.
Typically, a spendthrift provision or trust is established so you can delegate how your beneficiary receives and manages their inheritance. You decide which property they receive, how they are able to use that property, and whether or not they are able to profit from the use or sale of the property during their lifetime.
A spendthrift trust protects your estate from irresponsible management if your beneficiary is not suited to inherit complete control of the trust assets.
With a generation-skipping trust, you are literally skipping a generation of beneficiaries. It is a binding trust that passes your estate and trust assets to your grandchildren rather than your children.
This type of trust offers financial security to your grandchildren, who may need your estate more than your adult children. Since you are avoiding title transfers to your children on the property in the trust, you are able to avoid estate, gift, and transfer taxes on your trust assets.
A disability trust is established to consider the long-term care and medical needs of your beneficiary. With a disability trust, you provide accrued funding for their physical and medical care, while also providing for their long-term residency.
You name your trustee to manage the funds of your disability trust, and your guardian to manage the care of your beneficiary. The trustee will review all financial transactions of the trust principal to ensure that the funds are used for the sole benefit of the beneficiary.
Therefore, the guardian has no access to the trust assets. The guardian communicates the possible financial needs of the disabled beneficiary to the trustee for review and approval before trust assets are withdrawn.
3) Tax-Saving Virginia Trusts
Grantor Retained Annuity Trust (GRAT)
Your GRAT is a hybrid of an annuity and a trust account. You pay tax when you establish the trust and avoid taxation on the transfer of the trust’s assets.
It begins as an irrevocable trust with a term of activity. Once you’ve established the trust, you name the assets that will be transferred to the ownership of the trust.
Annuity on your trust is paid annually. This annuity accrues from the interest earned on your trust assets. Then, once you reach the end of your GRAT term, your beneficiary receives your trust assets.
However, in order for your beneficiary to receive the designated assets, you must outlive the term of your GRAT. Should you die before the term is over, your trust assets are assumed by your estate, and become taxable estate property. Your named trust beneficiaries will not receive the property if it is reabsorbed by your estate; it is instead passed on to your estate beneficiaries.
Grantor Retained Income Trust (GRIT)
As another irrevocable trust, a GRIT transfers assets to the trust. However, you retain your income and use of the trust property for the set term of the trust. Income payout is established in your trust documents.
Once your trust term ends, you cease to receive an income on those assets. The property of the trust is distributed to your beneficiary at the end of your term. This trust ensures that if you outlive your trust terms, you are exempt from paying estate taxes on the transferred property of your trust.
Grantor Retained Unitrust (GRUT)
Another irrevocable trust, however this one exchanges assets for income. Your chosen estate assets are transferred to the trust, and you receive annual payouts based on the value of the property within the trust. The value will fluctuate over time.
Once the trust term ends, your assets and appreciated value are distributed to your trust beneficiaries. Even if you outlive the terms of your trust, your assets will distribute to your beneficiaries at the end of the term.
4) Charitable Virginia Trusts
A charitable trust is an irrevocable trust established specifically to fund a charity of your choosing. The charity you choose receives income from the trust for the trust term. Once the term of the trust expires, the remainder is distributed to your estate beneficiaries.
Charitable Remainder Trust
Unlike the lead charitable trust, a charitable remainder trust provides income to your beneficiaries for a set trust term. Unlike a lead charitable trust, you are able to name yourself or your spouse as the beneficiary of the trust income.
Once the term expires, your remaining assets are distributed to the charities of your choosing.
Both charitable Virginia trusts reduce your overall taxable estate and offer state and federal tax deductions.
5) Education Trust
An education trust – not to be mistaken with a Virginia529 plan – is a trust you establish to fund your beneficiary’s education.
Typically, an education trust is formed as a generation-skipping trust to stabilize the educational future of younger grandchildren.
Your assets are transferred into the trust, and the trust assumes legal ownership of your assets. You name your beneficiaries and a trustee, just as with any other trust.
However, when you die, your assets aren’t automatically distributed to your beneficiaries. Rather, your trustee manages your trust assets and distributes assets to beneficiaries on the basis of academic need.
Therefore, the assets of your education trust can only be disbursed for educational purposes: textbook purchases, tuition, room and board, mandatory fees, and other expenses. Your beneficiaries do not have direct access to the funds of your education trust.
6) Discretionary Trust
A discretionary trust is the most flexible trust available. You form the trust by funding it with estate assets, however, inheritance isn’t fixed. You name your trustee and your beneficiaries, specifying who receives which trust assets.
The difference is that you are able to establish qualifying inheritance criteria. Your beneficiaries are required to adhere to these criteria in order to receive their inheritance.
In other words, naming them as the beneficiaries of your trust assets does not guarantee inheritance – your beneficiaries must comply in order to inherit.
There are additional restrictions on discretionary Virginia trusts. For example, you cannot stipulate that a beneficiary’s inheritance is determined on whether or not they are willing to proceed with a divorce.
A discretionary trust provides you with the ability to designate how your property will be used, who will have access to the property, who will receive income accrued on your property, and how that income is to be spent.
This form of trust grants you more post-mortem control of your estate assets.
7) Family Virginia Trusts
Establishing a child’s trust allows you to leave specific property to your named child or children. This property is held separately from your estate, bypassing probate and transfer taxes.
You can create a child’s trusts for multiple children and properties. Each child and property will require a separate child’s trust.
Although your child is the named beneficiary, it is not certain that your child will receive their inheritance. In Virginia, a child must be 18 years-old in order to hold independent property. Minors below this age require a trustee to manage their inherited estate until they are legally old enough to claim it.
Family Pot Trust
A family pot trust establishes a community estate trust for your children. This means that the property included in your trust is equally owned by the beneficiaries named in your trust.
Any amount of the trust can be spent for any given reason at any given time. There is little to no financial security, and the entirety of the trust is left to the discretion of your beneficiaries.
You have a wide number of choices when it comes to protecting your estate. Establishing a trust takes time and careful effort, but it the end, Virginia trusts are an effective estate planning tool that’s worth considering.
For this reason, you should schedule a consultation with an estate planning attorney to discuss your trust options.