Every state has laws that deal with what happens when a person dies without a Will or a Trust (intestacy). In Virginia, if you die without a Will or Trust, the state has a predetermined plan that governs what happens to your assets and your minor children. If you have a lot of faith in elected officials then you need read no further. However, for most of us the government's plan is not our first choice and we need to set up a Will or living Trust which provides instructions for how our business and other assets will be handled, and how our minor children will be cared for. The bottom line is that we all have just two choices, our plan .... or their plan.
So what is a Will and what are the benefits of having a Will? The main purpose of a Will is to name someone to handle your affairs (Executor), establish who will receive your assets, and how they will receive them. Your Executor will be responsible for following the instructions you have provided, for paying any taxes or creditors, and for protecting your estate until all of the assets are distributed. If you have minor children, your Will should also identify a guardian who you want to care for your children and raise them according to your standards. If you have a large estate, your Will should also include tax planning to take advantage of available federal and state estate tax credits.
What about a Trust, what is it and how is it different from a Will? A properly funded revocable or living Trust avoids probate, a Will does not. Probate is a court supervised process intended to make sure that at your death, your assets are distributed as required by your Will. If you have no Will, the court would make sure that your estate and your children are dealt with according to the state's plan. Probate is a very public process which requires that your Will be recorded along with a list of your heirs and a list of all of your assets. Typically Probate fees are charged and the distribution of assets (particularly real estate), is delayed until the court determines that all taxes, creditors, and claims have been fully satisfied. If you own real estate or other assets in more than one state (don't forget that vacation home on the Outer Banks), then your Will is going to be probated in both states.
I like to think of a Trust as if it is a suitcase that holds your assets. Instead of owning assets in your own name (vehicles, real estate, personal property, investment accounts), they are legally transferred to your Trust (or suitcase) so that during a lifetime disability, or at your death, they can be managed for your benefit and the benefit of your spouse and children. In addition, anything in the suitcase at your death, avoids probate. In the Trust document you name yourself and perhaps your wife, as the initial Trustees. You also name successor Trustees who could be your CPA or attorney, a financial institution, or a trusted friend or relative. The Trustee is responsible for carrying out your instructions in the Trust document to ensure that the plan for distribution to beneficiaries is properly executed. Because a living Trust is revocable, you can change its terms at any time, and can take assets out or put in additional assets during your lifetime. Remember that the assets in a Trust avoid probate completely, even if they are in another state (that vacation home on the Outer Banks).
Every family situation is unique, if you are married you and your spouse should have separate but compatible Wills or Trusts. Thats because you never know who will die first. If you are in a second marriage or have children from a prior marriage, it is very easy to accidentally disinherit your children if proper Wills and Trusts are not established. If you have an interest in a family business or own your own business, a Will or Trust along with business succession planning is essential to avoid having elected officials determine how your affairs will be handled. Things change in our lives as well, you may acquire new assets, win the lottery, lose relatives to death, move to another state, gain children or grandchildren, buy or sell a house or a business, or go through a divorce. All of these situations are ones that require a review of your estate plan to ensure that your desires will be carried out in the event of a disability or at your death.
Two options, let elected officials determine your estate plan, or design your own estate plan by using a Will or a Trust with the assistance of your attorney. Remember that if you die without a Will or a Trust, the state controls what happens to your children, your assets and any business in which you have an ownership interest.