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Common Types of Trusts and When to Use Them

living trust document

Common Types of Trusts | NOVAEstateLawyers.com

Trusts can be a smart estate planning tool to supplement a valid Will. There are several different types of trusts you can establish, and the right one(s) for your needs will depend on: (1) how and when you want your beneficiaries to inherit what you leave them; (2) the types of assets you want them to inherit, (3) any unique issues that may exist for you or one of your beneficiaries, which may include a family pet; and (4) your overall long-term planning goals to protect yourself and your loved ones.

When should you consider a trust?

While nearly everyone needs a Will, not everyone benefits from the creation of a trust. They are two independent estate planning tools that work in tandem with each other to ensure a smooth transfer of assets upon an individual’s death.

A trust is a good option for individuals who want to keep certain assets out of probate court. In addition, a trust can help you appoint someone to manage assets on behalf of your minor children should you pass away before they reach adulthood, or on behalf of others depends who would be otherwise unable to care for themselves.  A trust can also provide a unique tool for protecting a unique beneficiary such as a child with special needs or even a family pet.

What types of trusts exist?

Trusts involve a grantor (sometimes also called a “Settlor” or a “Trustor”), which is the person who creates and funds the Trust.  Then there a Trustee, which can be the original grantor or another person, or even a bank (sometimes called a “corporate trustee”), which manages the trust assets in accordance with the terms of the Trust Agreement. Lastly, there are the beneficiaries, which can be the original grantor, the grantor’s children or other named persons, but can also be a pet or charitable foundation – the one intended to benefit from the Trust.

A trust can be created and implemented while the trust maker is alive, known as a “living trust.” A trust can also be created through a Will, and is funded from the probate assets after the death of that person, which is called a “testamentary trust.” This type of Trust only takes effect at the death of the testator (the one who signed the Will).

Common types of trusts include:

Revocable trusts

Revocable trusts (sometimes called a revocable living trust or an inter vivos trust) are created during the lifetime of the person making the trust. They can be modified or revoked at any time while the trust maker is alive. Assets that are passed to beneficiaries through a revocable trust are not subject to probate and can save your loved ones a lot of time, money, and hassle. However, a revocable trust is not ideal for asset protection, as all assets allocated to the trust may still available to the trust maker’s creditors depending on how the terms of the trust are drafted and what powers are given to the trustee.

Irrevocable trusts

An irrevocable trust cannot be modified or revoked once it is created, not even by the trust maker (except in rare instances). Assets that have been transferred to an irrevocable trust are protected from any judgments or lawsuits, but you also lose all control over those assets once they are placed into the trust.

Special needs or supplemental needs trusts

A special or supplemental needs trust (also known as a “third-party trust”) is usually created for a beneficiary with physical and/or mental disabilities to protect the assets you intend to leave that person. When properly drafted, a special needs trust allows your beneficiary to receive supplemental support above and beyond (and totally separate from) the government benefits they receive as an individual with special needs. This is important, as your loved one may not qualify for those federal benefits if they inherit assets through a Will.

Asset protection trusts

An asset protection trust (also known as a “spendthrift trust”) is ideal for protecting an individual’s assets from future creditors or claims. Typically, this type of trust is irrevocable for a defined period of time and is established with a beneficiary other than the trust maker. Once this period is over, the trust can be terminated and any assets that have not been distributed are usually returned to the trust maker.

Charitable trusts

A charitable trust is usually established to benefit a specific charity as part of an estate plan. Creating a charitable trust can also be used to reduce gift and estate taxes.

Pet trusts

A pet trust ensures that the trust maker’s beloved pet is cared for after their death. Since assets cannot be transferred directly to a pet, a chosen caregiver is named as the trust’s beneficiary and instructed to use the trust’s assets to finance the care and well-being of the pet.

Get help exploring your trust and estate planning options

To learn more about whether a specific type of trust is right for your estate planning needs, schedule a free consultation with the Law Office of Patricia E. Tichenor. We will walk you through the basics of trusts and how they can help you provide for the people, pets, or causes that are important to you.

Why (and How) to Disinherit Someone from Your Will

disinherit dictionary page

How to Disinherit Someone from Your Will | NOVAEstateLawyers.com

No matter your current age or status in life, it’s important to keep a valid and updated Will to secure your loved ones’ financial future. Sometimes, this means making adjustments when certain people you once intended to leave part of your estate to are no longer an active part of your life.

Disinheritance is the process of removing beneficiaries from your Will. If someone stands to inherit a portion of your financial assets after your death, disinheritance leaves that person with nothing.

Keep in mind that disinheritance differs from simply revising your Will, as it will completely remove a beneficiary from receiving anything. This can happen for several reasons, but sometimes an individual may elect to leave no reason for the disinheritance for a remaining beneficiary.

Reasons to disinherit someone from your Will

 

Disinheritance is a serious matter, so it’s important to understand what scenarios may render this your best option:

  • Divorce: A divorcing couple should always revise their estate plans once their divorce is finalized. Although spousal inheritance rights are terminated upon divorce (i.e., any Will drafted prior to the Final Order of Divorce is rendered invalid if an ex-spouse is named as a beneficiary), you may need to go through your other estate plans, such as power of attorney documents, trusts, or pay-on-death accounts, to ensure your ex is removed from those documents. Additionally, you may need to revise your Will to disinherit any former in-laws you may have added to your estate plans during your marriage, as a divorce decree does not invalidate their inheritance. By taking these steps, you’re setting your children, family members, and future spouse (should you choose to remarry) up for financial success.
  • Estrangement: People come in and out of your life. When this happens with family, it’s important to enact financial protections so the family members in your life are set up properly. Should a child or family member become estranged from you, it’s important they’re disinherited.
  • Medical/health status: If you have a child or family member with special needs, you may wish to disinherit them from your Will so they are not disqualified from receiving certain government benefits after your death. Or you may need to create a Special Needs Trust for them instead and name their Trust as the beneficiary in your Will so that what you do leave them will not be treated as a countable asset and will therefore not negatively impact their ability to receive such government benefits after your death.
  • Decreased financial need: People’s financial situations change over time. As your children and family members live their lives, they could require different amounts of your wealth to keep them afloat. This is an entirely subjective decision and one that will vary widely based on your specific situation.

How to disinherit a family member or loved one

The basis for disinheriting someone comes down to clarity. You want to be explicit about your intentions – and ensure your documents are valid and properly drafted – so there can be no dispute over how your estate is handled.

1. Give gifts during your lifetime.

One simple way to ensure the right people receive the right parts of your estate is to gift them to the proper individuals while you are still alive. While this may not always be an ideal scenario, it is a sure-fire way to ensure your wealth is disseminated properly.

2. Designate beneficiaries with no-contest clauses.

While giving major financial gifts to beneficiaries is a good option, it’s not always ideal for people. When your will is drafted, make sure you designate what each beneficiary gets and include a no-contest clause. This clause will reduce conflict among your family and beneficiaries.

3. Include a supplementary letter or video recording.

If you feel strongly about your inheritance, it’s good to include a supplementary letter or video recording explaining why and to whom you are designating who should not receive certain assets. Especially in the case of disinheritance, a supplementary letter or video guarantees that a certain level of clarity is achieved. This means family conflict can be avoided, and a beneficiary’s lawyer cannot try to leverage silence as a way to maximize their position to contest your Will.

4. Have your spouse waive your claim.

This option is especially present in cases of divorce. Upon your passing, your spouse can also waive the right to their share of your inheritance through a postnuptial agreement. This is often included as essential documents in divorce proceedings.

Drafting an air-tight Will and ensuring the right beneficiaries receive the right amounts of your estate can be tricky. The Law Office of Patricia E. Tichenor can help you ensure your estate plans are properly drafted and protect your family’s future. Contact us to schedule your free consultation.

6 Common Reasons to Update Your Will

couple looking at paperwork to update their will

Reasons to Update Your Will | NOVAEstateLawyer.com

Writing your Will isn’t normally a one-and-done process. Your life is ever-changing, and from time to time, you’ll want to revisit and revise your will to match your current situation.  Changes in your age, your children’s age, the birth of a grandchild, declines in a family member’s health, and, equally important, changes in state and federal law, especially tax laws often warrant a review of your current Will and overall estate planning goals.

Updating your Will and overall estate plan is generally recommended after any change of life event or major circumstance changes, provided you’re not being coerced by another party to do so. Here are six common reasons to consider updating your existing Will.

1. Your family situation has changed.

Since you drafted your original Will, your family dynamics may have changed. Changes to your own health, your spouse’s health, or that of one of your children can prompt the need to also determine if a Will alone is sufficient to protect you and them in the future – especially if you may cease to have the capacity to update your Will at a later time.  An addition to the family, including children and grandchildren, can prompt you to reconsider your beneficiaries, especially if they are under the age of eighteen (18) or twenty-one (21). Additionally, it is always important to consider updates to your designated testamentary guardians, particularly as your children become more established in their education and community connections such that placing them with an out-of-state guardian may not be in their best interests.

Family-related Will change can also be required in the event of a divorce or the passing of a family member who was named as a beneficiary. As soon as possible after these events occur, you’ll want to update your Will to ensure your assets are distributed according to your current wishes.

2. Your relationships have changed.

As life goes on, relationships, including those with romantic partners, family, and friends can change.  You may not have the same closeness you once did with someone or are unsure if a beneficiary in your Will is able to take on your assets once you pass. Those you may have chosen as executors of your Will may not be able to hold this role anymore, making it crucial to reflect these changes in your current Will.

3. You’ve moved or acquired an out-of-state asset.

Laws governing estate planning and the validity of Wills can vary based on where you live.  For instance, if you recently moved to Virginia from another state or country, you may wish to consult with a local attorney to ensure everything in your Will is still valid as written — particularly if you purchased a home in Virginia.  It may be best to review the differences in the probate laws of Virginia versus the state or country from which you relocated.  Similarly, if you recently purchased an out-of-state property that you plan to leave to a loved one, be sure you understand whether using a Will is the best tool for doing so as well as the gift tax consequences for such a devise.

4. Tax or estate laws have changed

Federal and state tax laws are constantly in flux, and the new Biden Administration is expected to propose some changes that could impact your current estate plans.  Understanding these laws and making changes to your Will and your overall estate plan could be critical to ensuring you transfer assets to your loved ones using the most effective estate planning tools available.

5. Your assets have changed

Another reason to update your Will is either a sharp increase or decrease in your current assets. If your asset value is no longer as high as it was, you may want to reevaluate the distribution of your assets in your will.

Additionally, if your assets have increased, you may want to re-allocate your distribution plans for your named beneficiaries or add more beneficiaries.  It’s also possible and often advised to create a trust, which could keep your heirs from having to go through probate in order to inherit certain assets.

6. You’ve had a change of heart

Another reason is, quite simply, that you may have experienced a change of heart in your current relationships or assets, which warrants an update to your will and overall estate plan.  Maybe you drafted your will when you were young and have a different idea of how you’d like to distribute your assets. Maybe your children are grown adults, with different financial or life circumstances.  Whatever the reason, it’s common to make adjustments to your will based upon careful thought and consideration of life’s changes.

Updating your Will? Get help from an experienced estate planning attorney.

Estate planning involves many types of choices and knowledge of the available tools to best implement those choices.  Trying to update your Will on your own or determine which tools might serve you best can be difficult and stressful.  Therefore, it’s important to work with a seasoned estate planning attorney to help you become fully informed of the tools available to you and avoid any potential issues along the way.

The Law Office of Patricia E. Tichenor, P.L.L.C. has 20 years of experience handling estate planning matters for Virginia residents. If you need help drafting or updating your Will, or your other estate planning documents such as powers of attorney or a trust, we can guide you and your family through the process. Contact us to schedule a free consultation about your estate planning needs.

How to Choose an Executor for Your Will

man signing last will

How to Choose an Executor for Your Will | NOVAEstateLawyers.com

When you pass away, your executor is the one who will legally tie up any loose ends. They will typically handle of any or all of the following responsibilities:

  • File court documents for the probate process
  • Fulfill the distribution provisions contained in your will for any beneficiaries
  • Pay estate’s final bills, debts, and taxes
  • Notify the government, banks, and creditors of the death
  • Secure any assets for minors or an incapacitated beneficiary if immediate distribution to them cannot be made (commonly with trust provisions or custodial bank account provisions contained in the will)

Choosing an executor is an important decision, and it shouldn’t be taken lightly. This person should be someone with whom you have a strong relationship with and can trust to honor your wishes once you pass.

There are many questions you’ll have as you decide on an executor for your will, some of them obvious and some not. To give you some peace of mind as you make this choice, here are a few things you’ll want to consider.

Who can I trust?

Many believe the most important quality in an executor is financial and legal intelligence. However, no amount of intelligence matters if you’re not sure you can trust someone. Would you have confidence in this person to pay back a large amount of money you loaned them? Are they responsible and make good decisions in their own life? If you have a hard time answering yes, you may need to look elsewhere.

Be sure to appoint someone who is honest and can responsibly hire the right people to take care of your wishes. You need someone who you trust with your life to trust in death.

Do I have to pick family?

While the most obvious choice may be a close loved one, such as your spouse or oldest child, heavily consider if it is the right choice. No matter how strong your relationship, if you have difficulty relying on someone or they aren’t in good financial standing, they may not be the best person to support your needs after you’re gone – and it’s okay not to choose someone because of that.

Another factor in choosing family is age and health. If you don’t have someone in your family who you believe will outlive you or isn’t in good enough health to carry out these responsibilities, than you may want to consider looking outside of family.

What about a third party?

If you’re having a hard time choosing a family member or friend, another option is to appoint a bank, trust, or a professional estate executor to handle your affairs. These are business or legal professionals who will educate and engage you on the steps of executing your will and bring you into the process.

Keep in mind that hiring a professional will incur additional costs and fees: While a family member often takes on the executor role on a volunteer or reimbursement basis, a third party will expect compensation for their services. However, it may be worth the investment if you believe having a neutral party as your executor will keep the peace within your family after you’re gone.

How do I get someone’s approval to name them as my executor?

Whether you chose family or a third party, it’s strongly recommended that you ask their permission before you name them in your will.

If you’re choosing a family member or friend, sit down with them to review your current will and financial status so everything is clear. And as time goes on, continue to update them with any changes so they can stay up to date on your final wishes.

Have more questions about choosing an executor? Consult an experienced estate planning attorney.

Ensuring your affairs will be taken care of after you’re gone can be challenging. An estate planning attorney will review the process with you, discuss your options, and see if the person you have in mind as your executor is truly the best option for you.

The Law Office of Patricia E. Tichenor, P.L.L.C. has nearly two decades of experience helping Virginia residents with their estate planning needs. We’re here to listen and discuss your needs with you to take the next steps.

Contact us to discuss your circumstances so we can help you choose the right executor for your will.

How to Update Your Estate Plan After a Divorce

estate planning after divorce

Updating Your Estate Plans After a Divorce
NOVA Estate Lawyers – Leesburg, VA

The divorce process is often a very long and painful one. Although you may have already moved on emotionally, some legal aspects of your life can’t move forward until your divorce is finalized by the court.

When you do receive that long-awaited divorce decree, one of your first priorities should be updating your estate plans. If you didn’t enter into a settlement agreement or obtain a “divorce from bed and board” during your separation period, your spouse may still have been entitled to inherit as much as 50 percent of your estate if you die during that time. Once you’re no longer legally married, your ex cannot benefit from your estate unless you want them to.

One exception is retirement accounts and life insurance if governed by federal law. You must update your beneficiary designations to remove your ex’s name from them if you want to be certain they do not inherit from you (see more on this below).

Which estate planning documents should I update post-divorce?

Following your divorce, you’ll want to review all your essential estate planning documents to see where your spouse is named. Here are a few common items to address:

Your will. As mentioned above, an ex-spouse won’t inherit anything left to them in your pre-divorce will, nor will they be allowed to serve as your executor if you named them as such. But if you don’t appoint a new executor and beneficiaries for your estate, a probate court will decide that for you. To reduce time, frustration, and costs for your family, make sure your will gets a thorough revision after your divorce. It’s important to note that any bequests to an ex-spouse’s family members will still be valid, so considering changing those as well.

Trust arrangements. Unlike your will, spousal trust arrangements are not automatically voided upon divorce. If you named your spouse as a trustee or beneficiary in your revocable living trust, consult with an estate planning attorney to make the appropriate changes. Unfortunately, if your trust was irrevocable, you cannot change it to exclude your ex-spouse unless that trust contains administrative provisions at the time it was originally drafted that permit you to void the document if you and your ex ever divorce.  In addition,  if you never funded that irrevocable trust, then you could control what happens with it by simply choosing to create a new trust and never titling any assets into the old irrevocable trust created during your marriage.

Power of attorney agreements. In Virginia, a durable general power of attorney (for financial decisions) where a spouse is the agent is deemed invalid upon filing for divorce or separation. However, a durable medical power of attorney – which lets your agent make medical decisions for you if you’re incapacitated – still stands, even after a divorce. If your spouse is currently named as your POA agent, change these designations as soon as possible.  If you’re entering into a settlement agreement, make sure it contains provisions that revoke your spouse’s role under all powers of attorney executed by you during the marriage.

Legal guardianship designations. If you and your ex have minor children, you likely named a legal guardian together in your wills in the unlikely event you both died. While courts typically grant custody to a child’s other parent when one dies (unless they are deemed “unfit”), be sure that any other guardians named in your will are people you still feel comfortable with, such as an in-law.

Direct beneficiary accounts. Insurance policies, retirement plans, and other “payable on death” accounts have their own separate beneficiary paperwork. By law, certain policies will not pay out to an ex-spouse, but it’s still important to appoint new beneficiaries after your divorce to ensure your money goes where you want it to.

What if I want to keep my ex-spouse in my estate plan?

The Commonwealth of Virginia automatically negates any inheritance to an ex-spouse in wills written prior to a finalized divorce. However, there may be circumstances in which you still want your include your ex in your estate plan, particularly if you have minor children.

If you want to leave money or property to your ex-spouse specifically for the care for your children, the best way to do this is to create a revocable living trust. This allows you to title your property in the name of your trust and then appoint your ex as the trustee, who manages the assets on behalf of your children until they reach adulthood. If you don’t already have a trust, an attorney can help you create one.

If you have an amicable relationship with your now-ex and still want to leave property directly to them, all you have to do is write this into a valid post-divorce will.

Ask an estate planning attorney.

Even if you know exactly how you want to change your will, trust, power of attorney agreements, etc. post-divorce, you should still consult with an estate planning attorney to make sure your documents have the proper legal language and offer the maximum benefits for your loved ones.

Located in Northern Virginia, The Law Office of Patricia E. Tichenor, P.L.L.C. is experienced in both estate law and family law, so we are uniquely positioned to help with your estate planning needs after your divorce is final. Contact us today to get started.

The Law Office of Patricia E. Tichenor, P.L.L.C.
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(703) 669-6700

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