What is the Best Way to Make Changes to My Living Trust?
A revocable living trust is a valuable estate planning tool that can be used to transfer assets and property to your heirs upon death without the need for the property within the trust to go through probate. As the name implies, this type of trust can be revoked at any time during the lifetime of the grantor/settler, as opposed to an irrevocable living trust, which cannot be revoked or modified once it is activated.
Setting up a revocable living trust is often a very good option, because as we all know, life happens and there are many significant events that might necessitate the need for the trust be changed. These may include:
Did you recently get married? If so, you will want to make sure that your spouse is added to important estate planning documents, such as your will and trust. You will also probably want your spouse listed as the primary beneficiary on your life insurance policies, retirement plans, and other accounts. Also, if a family member that is named in your estate plan got married, this might also require some updates to various documents.
On the opposite end of the spectrum, you may have gotten divorced within the past year or two. But with all of the emotional stress that normally comes with dissolving a marriage, divorcing spouses sometimes forget to update their estate plans accordingly.
- Birth or Adoption of a Child/Grandchild
Have you recently welcomed a new member of the family? Maybe the birth or adoption of your own child, or perhaps a new grandchild. If this is the case, you will want to make sure this child is listed as an heir and/or beneficiary on various documents (according to your wishes), and if this is your child, you will need to name someone you know you can trust to be their guardian if something happens to you.
- Child Becoming an Adult
When your child reaches the age of majority, there are some legal implications that you should be aware of. First of all, accounts that you may have opened as minors on their behalf now belong to them. The same applies to inheritances that they received as a minor – unless otherwise specified.
Another important change is in the area of medical privacy and healthcare decisions. Once a child becomes an adult, HIPPA prohibits the release of their medical information even to their parents, unless a HIPPA release form is signed.
When your child becomes an adult, they should set up some estate planning documents of their own. Namely, a medical power of attorney that appoints someone (usually Mom and Dad) to make healthcare decisions on their behalf should they become incapacitated. A financial power of attorney might also be a good idea for the same reasons, and if they have any significant property and assets, they should definitely create a will.
If you have a special needs child, things can become more complicated when that child reaches adulthood. For adult children who are unable to care for themselves, you will need to make special arrangements to ensure that they receive the care they need. This might include obtaining guardianship of the child, setting up a special needs trust, and several other options that you should discuss with a skilled and knowledgeable estate planning attorney.
- Death or Serious Illness of a Loved One
Did someone who was named in your estate plan recently die or become seriously ill? If so, you will want to update the appropriate documents. Also, if this individual was named as an executor, trustee, or power of attorney, you will need to find a suitable person that you can name in their place.
- Relationship Fallouts
One unfortunate fact of life is that relationships with family members can sometimes become strained. If you have had a falling out with someone who is named in your estate plan to the point where you do not want them to be a part of it anymore, then you should update your documents accordingly.
- Purchase or Sale of a Major Asset
If you have bought or sold a piece of real estate, opened or closed the business, or purchased or sold any other type of major asset, this type of event should be reflected in your estate plan.
- Substantial Change in Your Financial Situation
Closely related to the last point, has there been a significant change in your finances? For example, maybe you sold a piece of real estate for a very large profit, or maybe you came into a lot of money from an inheritance. Major financial changes like these should be addressed in your estate planning documents.
- Tax Changes
When you have financial changes, they could have tax implications as well. For example, if your wealth has increased to the point where you might be impacted by the estate tax, you will want to look at some estate planning strategies that will help minimize your tax liability. There are also changes to federal and state tax laws every few years that should be looked at in light of your estate plan.
- Change in Your State of Residence
Have you recently moved from one state to another? If so, you might need to tweak your estate plan accordingly. For example, let’s say you just sold your home in Maryland and purchased a new home in Virginia. In a case like this, you may not be aware that Virginia allows transfer on death (TOD) deeds for real estate while Maryland does not. This means that you can use a TOD deed to transfer your new home directly to your beneficiaries upon your death without the need for the property to go through probate.
Important Note: If the trust was drafted properly, it should already allow for the ability to add new property to it without a formal amendment or restatement. After all, the primary purpose of this document is to hold property that is later distributed to designated beneficiaries.
Ways to Change a Revocable Living Trust
If you need to make modifications to your revocable living trust, there are three ways you can go about this:
If you have minor changes that you want to make to your trust and you have not amended anything within the trust in the past, then doing a trust amendment might be the best option. A minor change is one that does not fundamentally alter the terms and conditions of the trust. Examples may include adding or removing a beneficiary or naming a different trustee.
It is important to be very specific about what you are amending, so it is clear when it comes time for the terms and conditions of the trust to be executed. Also be very careful about making too many amendments to a trust over time as this could cause the language to become confused. If you need to make multiple changes to your trust, then restatement might be a better approach.
As we just mentioned, if you have several changes to make to a trust and the result would be that the trust is altered extensively, then a trust restatement is a good way to accomplish this. This option might also make sense if there are any changes to federal or state laws that impact the terms and conditions of the trust.
A trust restatement essentially involves rewriting the trust with a new document that incorporates the changes that you want to make while leaving the other provisions of the original trust in place. It is very important that the document clearly states that this restatement supersedes all other amendments to the trust, and it should also state clearly that you are not revoking it.
The third way to change your revocable living trust is to revoke it altogether and start over. This, however, is an extreme option that should only be exercised as a last resort. Although a trust revocation might accomplish similar results as a restatement, there are some very important differences. First of all, with a revocation, all of the property within the trust reverts back to the original owner and must be retitled. Secondly, legally removing property from a trust can trigger unintended tax consequences which could be avoided by doing a restatement instead.
Consult an Experienced Virginia Estate Planning Attorney
Revocable living trusts should always be set up with the help of a skilled and knowledgeable estate planning lawyer, and they should also be reviewed regularly to help ensure that the terms and conditions of the trust are still in keeping with your estate planning needs. If you need help with a new or existing trust in Virginia, contact Buck, Toscano & Terezkerz by calling (434) 977-7977 or messaging us online. We look forward to serving you!