Trusts and wills are extremely important parts of any estate plan. They are documents that can help determine what happens to your assets when you pass away, who receives them, and when they receive them. One mistake, however, is that many people assume trusts and wills perform the same action. This is not the case. Our Virginia Beach estate planning team tells you what you need to know about trusts and wills below.
A will, otherwise known as a “last will and testament”, is an estate planning document that specifies where your property goes when you pass away. They also allow you to designate who receives your property and appoints an executor responsible for making sure your wishes are carried out as specified within the document.
Wills are also capable of naming a guardian for minor children, in case something should you pass away suddenly, with the option of naming alternate guardians within the will should your first choice not be available.
Wills can be modified at any time if you choose to do so. You have the option of either revoking the previous will entirely or creating a codicil, which amends the terms of the previous will. The most common circumstances someone might need to modify their will are:
- After a divorce
- A change in beneficiaries (who receives your assets)
- A change in family dynamics
Trusts do have many of the same abilities as wills, but hold several additional benefits as well. Once you have appointed a trustee to administrate the assets you place in the trust, you are able to place as much or as little of your property within it as you wish. These assets can also be accessed at any point in time to be used as needed over the course of your life.
One of the most important benefits attached to trusts, unlike wills, is the ability to avoid probate entirely, completely eliminating the need for a lengthy and stressful legal process.
There are also five main types of trusts that are designed to serve different intentions.
Living trusts allow the grantor to have the legal authority to transfer property into it via a trustee. Over their lifetime, the granter is able to maintain control over the trust to either change or revoke it if they see fit.
Benefits to living trusts include:
- Protection against the incapacitation of grantors and beneficiaries
- Healthcare/end-of-life provisions
- Not subject to probate
- Immediate access to assets by beneficiaries
- Granted greater privacy
Revocable Living Trusts
This type of trust is also created during the trustor’s lifetime and is able to be changed, terminated, or altered during their lifetime.
Revocable living trusts are also not subject to probate, where the trustor, trustee, and beneficiary can manage their assets until their death.
These trusts are chosen when someone would like to directly benefit a charity or non-profit upon their death. They are available to anyone holding appreciated assets with a low basis, such as stocks or real estate. When these trusts are funded, donors are able to sell their assets without sustaining any capital gains taxes, and are typically recognized by the charities themselves.
Qualified Personal Residence Trusts (QPRTs)
Qualified personal residence trusts (QPTRs) allow trustors to give away their house at a large discount and even freeze its value while maintaining the right to live in it. They transfer the title of the home to the trust and give trustors a specified number of years to live in it until it is passed on to the designated beneficiary without being taxed.
Special Needs Trusts
These trusts are put in place by donors to provide funds to beneficiaries with special needs when they pass away. Most importantly, when these trusts are drafted properly, the beneficiary is still able to receive government benefits while receiving funds from the trust.
There are two different types of special needs trusts:
Self-settled special needs trusts. A self-settled special needs trust is a trust created by an individual to fund with their own assets and resources. It must also be created under the name of the parent, grandparent, or guardian of the beneficiary, and not the special needs beneficiary themself.
Pooled trusts. Pooled trusts are often pursued when the beneficiary with special needs is over the age of 65 or is under the age of 65 without any living parent, grandparent, or guardian. They are typically conducted by non-profit organizations where the trustee opens a sub-account for each individual with special needs, with assets being pooled for investment purposes.
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