While it may seem a bit intimidating at first, it’s actually surprisingly easy to set up a trust in Virginia, provided you have the help of an experienced attorney or financial advisor.
Trusts are helpful estate planning tools that allow you to safely and efficiently hold and transfer personal assets and property.
Most importantly, trusts can help mitigate the long and frustrating probate procedures common for larger estates.
In this article, we’ll briefly explore the basics of how you can set up a trust in Virginia.
Note, however, that it’s often wise to speak with an attorney or financial advisor first before you start making any hard plans relating to your estate or a trust.
Only a professional who has reviewed your case can provide actionable advice on whether or not a trust is the right legal option for you.
Types of Virginia Trusts
As you might imagine, the first step in setting up a trust in Virginia is often to figure out what type of trust you want to create.
Each trust type has unique qualities that can either help or hurt your specific estate planning needs, so it’s important for you to choose the correct form of trust the first time.
While many different types of trusts are valid in Virginia, there are a few common trust types that you should be aware of when planning out your estate:
1. Living Trusts — A living trust is a legal document that places your assets, such as your house or your car, into a trust created for your benefit during your lifetime.
Upon your death, the assets in your living trust will be distributed wherever you’d like. Living trusts are the most common form of trust in Virginia.
2. Charitable Trusts — Basic charitable trusts are formed with the intention of donating the trust principle, income, or property to your designated charity.
Charitable trusts are irrevocable, and are established with the intention of funding a qualified charitable organization.
While some charitable trusts are created primarily for charitable causes, there are also tax benefits if it’s properly established.
3. Education Trusts — You can form an education trust with the intention of funding the academic pursuits of any named beneficiaries.
When forming this type of trust, you must indicate that the assets are intended for educational purposes only, and you must name your trustee, beneficiary, and how the trust assets should be used.
You delegate complete or limited control to your trustee, who then manages the trust according to the trust terms.
Transactions such as withdrawing income or distributing property to your beneficiaries are performed by your trustee.
5. Child Trusts — By definition, a child’s trust is a trust that is left to a child upon death, but is managed by the trustee until the child comes of age to inherit.
In accordance with Virginia inheritance law, children younger than 18 years of age cannot inherit property that exceeds $2,500-$5,000, dependent upon the type of property inherited.
Therefore, your trust must be managed by a third party until your beneficiary is 18 years-old.
What’s a revocable or an irrevocable trust?
Most (but not all) trusts can be either revocable or irrevocable depending on how you choose to structure it.
Put simply, the difference between the two is that a revocable trust can be changed, revoked, or terminated at any point during your life, while an irrevocable trust is set in stone and cannot be altered except for in very specific circumstances.
Generally speaking, revocable trusts are the favored option for most estate planning cases due to their general utility, though irrevocable trusts are still beneficial in some situations.
For example, some individuals may choose to create an irrevocable charitable trust to earn a significant income tax break or to protect their assets from being exploited by family members in the future.
As another example, creditors may be able to access assets held in a revocable trust, while the assets in an irrevocable trust are generally protected from creditors and other similar parties.
Whether or not your chosen trust type is revocable or irrevocable is an important topic you should discuss with an attorney.
5 Requirements to Set Up a Trust in Virginia
Most of Virginia follows the Uniform Trust Code, as outlined in the Virginia Code.
The Uniform Trust Code contains two specific laws that are relevant to our discussion on setting up a trust in Virginia:
We’ll outline the basics of each below.
Va. Code § 64.2-719. Methods of Creating a Trust
This section notes that a Virginia trust may be created through one of four methods:
- Transfer of property to another person as trustee during the settlor’s lifetime by the settlor or by the settlor’s agent…under a power of attorney that expressly authorizes the agent to create a trust on the settlor’s behalf or by will or other disposition taking effect upon the settlor’s death;
- Declaration by the owner of the property that the owner holds identifiable property as trustee;
- Exercise of a power of appointment in favor of a trustee; or,
- A conservator acting in accordance with Virginia’s normal estate planning rules.
Va. Code § 64.2-720. Requirements for Creation
This section further notes that a Virginia trust may only be created if:
- The settlor (or the settler’s agent) has capacity to create a trust;
- The settlor or his agent indicates an intention to create the trust (preferably in writing);
- The trust has a definite beneficiary or is (a) a charitable trust, (b) a trust for the care of an animal, as provided in § 64.2-726; or (c) a trust for a non-charitable purpose, as provided in § 64.2-727;
- The trustee has duties to perform; and,
- The same person is not the sole trustee and sole beneficiary.
So long as you and your attorney meet these five requirements in your trust document, you will be able to create a valid Virginia trust.
Note, however, that the details of some of these requirements may change depending on the type of Virginia trust you want to set up.
While the same basic requirements will stay the same, the implementation may be different on a case-by-case basis.
For this reason, it’s highly recommended that you speak with an attorney before you proceed with setting up a trust, especially if you’re planning to create anything other than a revocable living trust.
How to Draft a Basic Trust Document
Once you’ve chosen your type of trust and understand the requirements, you can start creating it.
The primary, and perhaps most important, step in establishing your trust is drafting a basic trust agreement.
A trust agreement is a legal document that designates the settlor/grantor, the trustee, and the beneficiaries of your new trust.
Furthermore, it outlines how the you’d like the trust assets to be managed and distributed both during your life and after your death.
This legal document should set forth:
- Your name, as the settlor of the will.
- Who you want to name as the beneficiaries to your assets.
- How you will split your assets and trust income to distribute amongst your listed beneficiaries.
- Who you want to name as the trustee(s).
To reiterate, the person you name as your trustee will normally manage your trust only once you pass away.
Before that, you are the trustee as well as the settlor. Basically, you remain in control of the assets until either you die or put the assets into a trust that requires you to hand over control.
Your trust agreement should also outline both how the trustee should distribute the income from the trust assets while the settlor is alive and once they die.
Notarizing Your Trust
Once you prepare your document, it’s generally recommended, though not legally required, to sign it in front of a notary.
Make sure to appear before the notary with an unsigned document.
In Virginia, the notary must watch you sign it in front of them to legitimize the document.
You can find a notary at your attorney’s office or a local financial institution.
How to Transfer the Required Assets into the Trust
In addition to creating the trust agreement, you must also fund the trust. After all, your trust is only valid once you put assets into it.
As such, this step involves figuring out what you own and what you will transfer to your trust.
The process to fund your trust will generally depend on the type of property you want to transfer.
If you’d like to transfer real estate to your trust, you have to execute a deed the transfers the title to the property of the trust.
Real estate property includes any homes you own, including second homes or rental properties.
You may also transfer personal property to your trust.
This includes assets like motor vehicles, boats, RVs, airplanes and mobile homes. Your personal property also includes stocks and bonds.
In order to transfer these types of assets, you will need a title document, which you should transfer to the trust.
You can transfer all other properties which don’t have title documents by simply writing a description of the property you wish to transfer.
For example, you could list “all of my household goods” or “the entirety of my watch collection,” which you must then make sure to transfer to the trust.
The first step to setting up a trust in Virginia is often to figure out which type of trust you’d like to create.
The most common type is a revocable living trust, but it’s often wise to discuss other options with your attorney or a financial advisor.
Once you’ve decided on the type of trust you want to create, all you have to do is draft the necessary documents and fund the trust with your current assets.
It’s important to note, however, that creating a legally strong trust is a little more complicated than it might seem at first glance.
For this reason, it’s strongly recommended that you speak with an attorney before you make any final decisions about how you’d like to set up your trust.
Only an attorney who’s reviewed your entire case can give you the advice you need to set up a trust the right way.