Many people who look into estate planning ask, “What is the difference between wills and trusts?” While both wills and trusts deal with estate planning, they serve different purposes. In this post, the legal team of PJI Law, PLC, estate planning lawyers from Fairfax, VA, outlines the key principles of wills, trusts, and their role in asset protection.
Wills and Trusts in a Nutshell
Here are the basic features of wills and trusts:
- Only comes into effect once the will-maker is deceased
- States who will receive the decedent’s assets
- Appoints an executor to carry out the decedent’s wishes
- Is potentially contestable and must go through probate, a legal examination by the court
- Can take effect immediately after its creation
- Allows a person or an institution (a “trustee”) to hold assets for beneficiaries
- Can distribute property before or after the trustor’s passing
- Can be irrevocable or revocable/changeable
- Assets in trust generally avoid probate
While we recommend that everyone have at least a will (whether or not you also have a trust), trusts aren’t strictly necessary for all individuals. Trusts are particularly helpful for individuals who have assets that are potentially going through probate, own property across several states, or have minor children.
Wills: the Basics of Estate Planning
A will, also known as a last will and testament, is a legal document specifying how the will-maker wishes to handle asset distribution and other affairs after their death. A will typically includes all of the principal’s assets, such as real estate, vehicles, and other property, and usually a list of debts. A will may also provide directions for a funeral or memorial service.
Usually, every will must go through a probate court before execution. In some states, it may be possible to avoid probate under specific conditions. Certain assets, such as insurance policies and retirement accounts, may, if planned properly, pass directly to named beneficiaries without probate.
What Happens If a Person Dies Intestate?
If an individual dies intestate (without an estate plan in place) in Virginia, estate distribution and other vital matters, such as guardianship of the decedent’s minor children, will follow state laws.
In the absence of a will, a court ruling may not correspond to the decedent’s wishes. Family members may waste a lot of time, money, and energy on a lengthy civil lawsuit. Assets or guardianship may end up in the hands of the wrong people under the state’s family law regulations.
To avoid such eventualities, make a legally valid will as soon as possible.
Like wills, trusts are a way to transfer property. A trust creates a fiduciary relationship, allowing a trustee to handle the principal’s assets for beneficiaries. Almost any individual, or certain organizations, can act as a trustee.
There are two types of trusts that will be discussed here: revocable living trusts and testamentary trusts.
Revocable Living Trusts
A revocable living trust comes into effect while the trustor, or property owner, is alive. Its terms may change during the trustor’s lifetime, and the trustor may retain full control of the assets the trust holds.
When the trustor passes, the trust can fulfill its function of passing property directly and immediately to named beneficiaries, bypassing the probate court and saving heirs time, hassle, and attorney fees.
Unlike a living trust, a testamentary trust only comes into existence after the creator’s passing. The decedent’s will includes specific instructions for creating a testamentary trust and its terms, including the time when it stops operating (for example, when the beneficiaries become legal adults).
Since a testamentary trust is part of a will, it must go through probate before it becomes active. A testamentary trust can be helpful to provide for beneficiaries who are minors or disabled adults.
Planning for the Future: How an Estate Planning Attorney Can Help
When people make an estate plan, they usually want to protect their estate from taxes, take care of their loved ones’ interests, and ensure that the right persons receive the right assets in time.
An experienced estate planning lawyer can help you work out an individually tailored estate plan for maximum financial control and complete peace of mind. Your estate planning attorney may suggest legal strategies to minimize taxes, streamline estate administration, and avoid or simplify probate.
PJI Law, PLC: Estate Planning Attorney in Fairfax, VA
A detailed estate plan acts as a financial safety net that protects your assets during and after your lifetime. Start making an estate plan today to protect your family’s future and your legacy.
PJI Law, PLC, is a highly respected law firm focusing on estate planning, probate, business law, and civil litigation. Each PJI Law client gets our total commitment, personal attention, and courteous, prompt service.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.