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To Trust or Not to Trust

By Attorney Katherine S. Breckenridge, Esq.

Published March 15, 2018 – Culpeper Times

Wills and Trusts : Estate Planning : Virginia

One of the items of tangible personal property I treasure most are books. There are certain ones that I want to protect – the ones that were my grandfather’s, ones given to me by treasured friends, and the children’s Bible with its worn, much-loved corners from which I taught my children the fundamentals of faith.

If I were to place the children’s Bible in the hands of another person and accompanied such action with the stipulation that they protect and safeguard that book, use it to teach their children, and upon the occurrence of their children reaching the age of majority pass that book along to my grandchildren, I would be creating a trust of sorts.

The fundamental meaning of trust is the assurance that what you expect to occur will do so. When one plans for the management of their assets while they are on this earth, and the distribution of the same upon their passing, knowing that a well-formulated plan is in place provides peace and assurance.

Frequently found in estate plans are the use of revocable trusts. Black’s Law Dictionary defines a revocable trust as, “a trust in which the settlor reserves the right to terminate the trust and recover the trust property and any undistributed income.” Revocable trusts often play a significant and useful role in estate planning. Before jumping to the conclusion that a revocable trust is suitable for your circumstances, consider whether the benefits outweigh the expense.

When you are in social gatherings, whether during a dinner party or playing bridge, when a friend makes it known that she has a revocable trust and espouses all that is good and wonderful about such an estate planning instrument, consider using that moment as an encouragement to take stock of your own plan. Rather than getting caught up in keeping up with what works for your neighbor, or buying into a plan that is simply more than you need, cautiously approach whether a revocable trust is suitable for your needs.

§64.2-719 of the Code of Virginia authorizes the establishment of a trust by a trustor during the life of the trustor, such as a revocable trust, or the establishment of a trust through the instrument of a will, which is called a testamentary trust.

A revocable trust is often attractive to individuals as a means of setting forth the terms of the use and management of their assets for their own benefit while they are on this earth, and the distribution of the assets upon their passing.

The analysis of whether the establishment of a revocable trust will be useful to you has an underlying premise of what level of protection and control is appropriate for you, your assets, your intent, and your estate. Consider at least four factors when completing the analysis: your interests in real property, your desire for assets to be managed seamlessly and distributed outside of probate, whether you intend to micro-manage assets following your death – from the grave, and the need for protection of your interests.

When beginning the analysis, one should take into account what assets are in one’s portfolio, beginning with real property – land, and land with improvements. Real property is probated in the jurisdiction in which it is located. Thus, if you own real property in Virginia, and real property in a foreign jurisdiction – for example, a vacation place in North Carolina, and there is no joint ownership with right of survivorship or transfer on death deed in place, upon your death your Executor if you passed with a Will in place, or your Estate Administrator if you passed intestate (without a Will in place), would probate your real property in Virginia, and would probate your real property in North Carolina – referred as ancillary probate. Leaving real property to transfer through such a process is not ideal, especially for the fiduciary taking on the role of Executor or Estate Administrator. A better approach would be to establish a revocable trust and fund your interests in the real property into the trust. Thus, upon your death your interests will pass per the terms of your trust and outside of the probate process.

A second step in the analysis is how you want to approach the management of your assets while you are on this earth, especially in the event of mental incapacitation, as well as the seamless distribution of those assets – outside of probate, upon your death. There are means of managing assets for your care and benefit while you are on this earth that do not require a trust, such as the use of Agency under a power of attorney. This is a point for discussion with your estate planning attorney.

A third component in the analysis of whether a revocable trust should be a consideration for you, is whether you want to “micro-manage” your assets from the grave. The pivotal question is whether you have an asset that you want made available for the use of one party, and upon your passing, the use is made available to the remaindermen. Thus, the asset is kept in trust past your death, and protected and used per the terms set forth in your trust.

A fourth, though certainly not a conclusive point, would be whether an individual thinks their wishes may be contested. Both a will and a trust can be contested. A will goes into effect on the death of the testator. A revocable trust goes into effect upon the signing of the instrument.

Thus, if there was a trust contest, and the terms of the trust were in existence and use for a reasonable amount of time, and the trustor could have changed the terms if she had wanted, one would hope a Court would uphold the terms of the trust.

Protecting your assets for the benefit of your use and distribution per your intent is worth the process of analyzing what estate planning documents as set forth in the Code of Virginia, are advantageous for your protection. Asking questions and investing the time is worth having trust in your estate plan.