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A trust is an arrangement under which a person or institution, called the trustee, holds and manages property for the benefit of another person called the beneficiary. The person who establishes the trust is called the "settlor,” ”trustor,” or “grantor”. Often the settlor, the trustee and the beneficiary will, at least initially, be the same person. There are "living" trusts, which are set up while a person is alive, and "testamentary" trusts, which are set up in a will to become effective after a person's death.

A trust is an effective method for providing for asset management and protection of resources in the event of illness or incapacity. It is a particularly useful tool for larger estates with multiple or complex assets or where there is no close family member available to act as agent. A trust also can be used to avoid probate. If all the assets owned by the decedent are in the trust, or pass by beneficiary designation, there will be no need for probate. This tool is especially useful when the decedent owns real property in a state other than his or her state of residence. A trust also can be used for estate tax avoidance or minimization and as a means of providing support for minor, disabled, or immature children or grandchildren.

A trust created for the lifetime management of property is known as an inter vivos or "living" trust. The trust can be revocable meaning that it can be amended or terminated at any time or under certain conditions described in the document; or irrevocable meaning it cannot be terminated before the terms of the trust have been fulfilled. The trust can be funded by titling accounts and assets to the trust, or left unfunded, depending upon state law. In Virginia, an unfunded trust is a valid trust.

Virginia has enacted the Uniform Trust Code (UTC), found in Chapter 7 of Title 64.2 of the Virginia Code. The UTC provides the requirements for the creation of a trust and rules for the administration of the trust. As long as it is consistent with public policy, the settlor’s expressed intentions will be followed over the default rules of the UTC. However, when the settlor is silent on a matter, the UTC will be controlling.

There are both advantages and disadvantages to the use of a trust. It offers the settlor a great deal of control. The settlor may serve as the initial trustee and may name the successor trustee to take over in specified circumstances. In managing assets, a trust allows for continuity of management and centralization of record keeping. A living trust is not subject to court supervision. It can be used to avoid probate. Through use of "spendthrift" provisions, when the beneficiary is not the settlor, it potentially can protect assets from the claims of creditors of the beneficiary. It is usually quicker, easier, and less expensive to distribute assets held in trust versus assets that pass through probate. 

Use of the living trust tool also has its disadvantages. A trust is more expensive to establish than a power of attorney and may be more expensive to manage. An irrevocable trust will require a tax identification number and the trustee is required to file an annual federal income tax return. A trust may adversely affect eligibility for public benefits such as Medicaid, if not properly written.

Where the goal is to establish a trust that will continue on after the death of the settlor, a living trust, as opposed to a testamentary trust, has certain economic and practical advantages. A testamentary trust, that is a trust established in a will, remains under the jurisdiction of the court. Unless waived in the will, in Virginia, each year an annual accounting must be submitted to the Commissioner of Accounts and fees based on the value of the trust assets must be paid. A living trust is not subject to the jurisdiction of the courts unless someone files an action against it.

Where a spouse is not a U.S. citizen, establishment of a qualified domestic trust (QDT) is a useful, indeed necessary, tax planning strategy.

In addition, where the goal is to insulate assets from beneficiaries' possible creditors, a properly designed trust may be the appropriate device.

Trusts have long been used to avoid gifting and estate taxes. At the end of 2012, Congress passed the “American Taxpayer Relief Act” providing a permanent federal gift and estate tax exemption of $5,000,000 per person, to be adjusted for inflation. This law reduced the need for many people to use trusts as a tax planning method. Many married couples still use “Disclaimer Trusts”, which allows a surviving spouse to disclaim all or a portion of a gift from the deceased spouse if it will necessitate the surviving spouse to pay taxes so that post-mortem planning can be utilized if the couple’s assets have increased or the gift allowance has decreased. Although the current federal gift and estate tax, along with portability (the ability of a surviving spouse to utilize the unused portion of the deceased spouse’s gift allowance if properly claimed) are supposedly permanent, Congress could change these laws in the future. If the tax laws change, trusts such as life insurance trust, charitable remainder trust, charitable lead trust, personal residence trust, settlor retained income trust, qualified terminable interest property trust (QTIP), and bypass trusts may become heavily utilized again. 

In the right circumstances a trust can be a useful tool in long-term care and decision-making planning. However, it must be specifically tailored to the needs and desires of the particular individuals creating and benefiting from it. An attorney can evaluate whether a trust is right for you.