Trusts and wills are essential tools in estate planning, each providing its unique framework for asset management and distribution after death. Trusts can help you avoid probate, as well as enhanced protection for your estate. Wills, on the other hand, can offer you simplicity and the ability to appoint guardians for minor children. Picking between either will depend on multiple factors, including the size of your estate and protecting your privacy. Here’s a breakdown of what you need to know. If you need help planning your own estate, consider working with a financial advisor.
What Is a Trust?
A trust is a legal arrangement that allows one party, known as the grantor, to confer the right to hold and manage specific assets to another party, called the trustee. This management is for the benefit of a third party, or beneficiary. So if you establish a trust as a parent, you would act as the grantor. You could then choose to transfer the management of your assets to a trusted financial institution that could act as a trustee for the benefit of your children, who would be your beneficiaries. In this sense, trusts can help facilitate structured, tax-efficient management to protect and transfer wealth.
Trusts serve a many purposes in estate planning, from minimizing estate taxes to safeguarding assets from creditors and legal judgments, and ensuring a planned transition of wealth to beneficiaries. This transfer happens according to the wishes and instructions of the grantor, potentially providing a level of control over the assets after their death, depending on the terms of the trust.
There are several types of trusts, including revocable trusts, irrevocable trusts, testamentary trusts and living trusts. The choice of trust usually hinges on the specific objectives of the grantor. Each of these types of trusts will be elaborated on in the following sections.
What Is a Will?
A will is a legal document created by the owner of assets that spells out how their assets should be distributed after their passing. It can safeguard the decisions they make during their lifetime to distribute their wealth and help loved ones get the care that they need.
A well-drafted will can serve many purposes. First, it designates beneficiaries and specifies how the will-maker’s property, possessions and financial assets should be distributed among them. Second, a will can also nominate an executor, who will be responsible for overseeing the administration of the estate. Third, it can appoint guardians for minor children, therefore outlining who will assume parental responsibilities.
Additionally, wills can manage the distribution of assets—both tangible, like property, and intangible, like stocks.
Key Differences of Wills vs. Trusts in Virginia
Specific laws, like the Code of Virginia, will establish specific estate planning requirements for both wills and trusts. Generally, both estate planning tools will differ in control of assets, requirements for probate, and privacy. A will, for example, only takes effect after the will-maker dies. Whereas a trust can be effective immediately, providing more control over how and when assets get distributed.
Here are four general areas in which wills and grants act differently:
Probate Process:
- Wills typically go through the probate process, which is a court-supervised process of validating the will, settling debts and distributing assets. The probate process is public and may involve court fees and delays.
- Trusts can avoid probate for the assets held within the trust, offering a more private and potentially quicker distribution of assets.
Privacy:
- Wills become public record during probate, and the details of the estate, beneficiaries and assets become accessible to the public.
- Trusts are private documents, and the details of the assets and beneficiaries generally remain confidential.
Flexibility:
- Wills are effective only upon the willmaker’s death, and are often used to distribute assets, name guardians for minor children and specify funeral arrangements.
- Trusts can be revocable or irrevocable, and can be used for various purposes during the grantor’s lifetime, like managing assets, providing for incapacity and specifying how assets get distributed after death.
Incapacity Planning:
- Wills do not address issues of incapacity during the will-maker’s lifetime.
- Revocable living trusts often include provisions for managing the grantor’s assets in the event of incapacity, avoiding the need for a conservatorship or guardianship.
Choosing Between a Trust vs. a Will
Despite their differences, trusts and wills share the common goal of ensuring that your assets are distributed according to your wishes after your death. However, their suitability largely depends on your personal circumstances.
As we already covered above, trusts can be used to avoid probate, manage assets during your lifetime and manage assets for minors or special needs individuals. Wills, however, are often simpler and less expensive to establish and can incorporate testamentary trusts that come into existence at the time of the will-maker’s death.
Choosing between a trust and a will is a significant decision that hinges on various key factors. These include:
- The size of your estate: Larger estates often benefit more from a trust.
- Privacy concerns: Trusts are not public records, unlike wills.
- Your desire to avoid probate: Trusts bypass the probate process, potentially saving time and money.
Special Rules to Consider in Virginia
Some specific rules that apply to Virginia, include the rule against perpetuities, which limits the duration of trusts to a certain number of years. Another important rule is the rule in Shelley’s Case, which can limit rights of a property to the lifetime of a person; other beneficiaries would have rights after that person dies.
Virginia also has stringent laws regarding the creation and execution of wills. The state requires, for example, that two competent witnesses be present when executing a will.
Bottom Line
When deciding between a will and a living trust in Virginia, you will need to consider the size of the estate, your privacy and whether you have other specific estate planning needs like naming a guardian to care for minor children.
Tips for Estate Planning
- A financial advisor can help you set up your estate properly to protect your assets and help your beneficiaries save time and money. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re trying to do your own estate planning, or at least get it kicked off before bringing in a professional, consider using a checklist to get it started right.
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