Last updated on May 20th, 2019
The role of trusts in Virginia estate planning cannot be understated.
Trusts are an important financial tool used to shield your assets, save you money in taxes, and provide wealth for your loved ones. Trusts are an arrangement where a trustee holds and manages
If you own any income producing assets such as stocks, bonds, mutual funds, etc. then a trust could be a a beneficial tool for you. Ultimately, the role of trusts in Virginia estate planning is to provide you with long term flexibility and financial protection.
Benefits of Trusts in Virginia Estate Planning
In order to understand the role of trusts in Virginia estate planning, it is important to understand the benefits a trust can provide. Here are eight benefits a trust can provide you and your loved ones:
1. Trusts Provide a Way to Create Wealth for Your Loved Ones
A trust allows you to create wealth for your family members and other loved ones. When you create a trust, you designate a beneficiary to receive the financial benefits of your income producing assets.
A certified trustee manages these assets and creates wealth. The financial benefits created by the trust are given to the person you name as the beneficiary. Thus, one role of trusts in Virginia estate planning is to create wealth for your family.
2. Trusts Provide Help Your Loved Ones Avoid the Probate Process
Assets inherited through a will must go through the probate court process. Unfortunately, the probate process could cost your loved ones time and money after you pass away. On average, probate courts could cost your loved ones anywhere from 5% to 7% of the value of your assets.
In contrast, a trust allows you to skip the probate process all-together.
This would allow your loved ones to get your assets quicker and save them money. Additionally, instead of the probate court ruling on how to handle your debts and distribute your assets, you get to make this choice.
Unlike wills, it is very difficult to challenge the legitimacy of a trust. In order to challenge a trust, you have to show that the person who created the trust was mentally incompetent at the time the trust was created.
To prove this the individual challenging the trust would have to show that the person who created the trust didn’t know what he or she was doing at the time the trust was created.
This is a high standard of proof for the challenger to meet. The only other way to challenge the trust would be to show that the trust was created under duress.
3. Trusts Provide Several Tax Benefits
Trusts provide several tax benefits for you and your loved ones. Most jurisdictions have an estate tax. Also called the death tax, an estate tax is essentially the state taxing your loved ones in exchange for transferring your property to them.
In some jurisdictions, trusts allow you to avoid estate taxes all together. By creating a trust you can reduce estate and gift taxes after your death. This means more of your money would transfer to your family after your death and less would pass to the government.
4. Trusts Provide Flexibility
Trusts provide a great amount of flexibility that other estate planning tools don’t provide. A trust allows you to put specific instructions on the distribution of your assets. This means that you can place conditions on your assets. This can encourage your loved ones to live a lifestyle that you approve of by providing financial incentives.
Additionally, trusts allow you to name just about anyone or anything as the beneficiary of your trust. This means that you can choose exactly where you want the financial benefits of the trust to go.
In addition to naming a loved one as the beneficiary of your trust, you can also name charities, animals, businesses, or just about anywhere else you want the income from your trust to go.
Additionally, if the beneficiary is poor at managing money, a trust can be a useful tool to provide for them. You can also put terms on the money the beneficiary receives. For example, you could say that the money must be used for food or rent.
A trust also allows you to leave specific instructions for your post death wishes.
5. Trusts allow you to Shield Your Assets
Some types of trusts allow you to shield your assets in the event of a lawsuit or from creditors. While not all types of trusts can safeguard your assets, there are a few types of trusts that will protect your assets from creditors.
A normal revocable trust will not shield your assets from creditors. However, an irrevocable trust can provide you the ability to protect your assets against creditors and lawsuits. By creating an irrevocable trust, you are essentially turning over ownership of the assets completely to the trust.
This means you cannot change this type of trust. Since you no longer technically own the assets, creditors cannot obtain these assets from you. The same is true if you were to be sued.
6. Trusts Allow you to Plan for Mental Incompetence
In the event you become mentally incompetent, trusts can be a beneficial tool used to manage your financial affairs. Mental incapacity occurs if your mental health diminishes to the point where your decision making abilities become questionable.
If you become mentally incapacitated you could effectively lose the ability to make important decisions. Unfortunately, if you become mentally incapacitated you will be more vulnerable to financial exploitation.
However, a trust allows you to prepare for mental incompetence. In the event you become mentally incapacitated, a trust allows someone else to manage your financial assets. This way you have someone qualified and trustworthy taking care of your affairs until you get better.
In the event your mental health returns, you could regain control. Unlike power of attorney in a traditional will, a trustee is already managing your income producing assets.
This means no one needs to step in to handle your financial affairs because your financial assets are already being managed.
7. Trusts are more Private then Other Estate Planning Tools
A trust provides you more privacy then other estate planning tools. Unlike wills, trusts are not a part of the public record. This means that no one will see how your assets are distributed to your loved ones upon your death.
Additionally, after your death your assets are kept private. If you are an individual that values his or her privacy then a trust could be an important tool for you.
8. Trusts Reduce Fighting between Family Members
Trusts can help avoid family disputes. In the event of your death, there could be family disputes about who inherits your property. A trust allows you to specifically detail what property should pass to each member of your family.
This can be really helpful when determining who will get important family heirlooms or other items of sentimental value.
Trusts play an important role in Virginia estate planning. Trusts give you the ability to protect your assets, create wealth for your family, and unparalleled flexibility. Furthermore, trusts provide tax benefits and attractive privacy features.
Hiring an experienced and competent estate planning attorney to create and manage your trust is highly recommended.