Do I Need a Trust? A Guide for Virginia Families

Not every Virginia family needs a trust, but a trust can be helpful if you want to avoid probate, protect privacy, manage assets during incapacity, provide for minor children, or simplify things for loved ones. For some families, a will may be enough. The right answer depends on your assets, family situation, and goals.

You can either leave them in a Custodial Account or in a Trust. The main difference is ownership of the accounts. The beneficiaries (kids) own the custodial account and have full access to all the assets at a stated age, whereas the trust owns the assets it holds and there is more accountability for distribution.

For a broader comparison of wills and trusts, see our page on wills and trusts in Virginia.

Testamentary Trust

A Testamentary Trust is a type of custodial account, which is the type of account created if you die with only a will or even with a will that has a Testamentary Trust. The purpose of this account is to have someone (of your choosing) hold the money for the child(ren) while under a stated age. With a custodial account, however, the beneficiaries (kids) own the account and have full access to all the assets at stated ages. When the child named in the custodial account becomes an adult (at whatever age you choose), he or she is free to spend that money anyway he or she sees fit. That means they can use it to pay for college, put a down payment on a house, or blow it all on a fancy new car.

Revocable Living Trust

A Revocable Living Trust (RLT) is not only for families with millions whose kids go to private school. A trust not only provides the person giving the money with more control, but it also offers greater asset protection for the beneficiaries (children/grandchildren). Since an RLT owns the assets, once you pass, the trust keeps the assets protected from creditors and potential divorce or separation proceedings of your beneficiaries in the future. You get to set the terms of the trust and determine at what ages, life events, or other intervals assets are to be dispersed. You also get to choose how much they get at every interval, either a dollar amount or a percentage of the available assets. You can also impose additional restrictions, such as attending an institution of higher education or securing employment before your kids would be eligible for a distribution. For Virginia families looking to avoid probate, a revocable living trust is typically the most effective tool available.

Irrevocable/Special Needs Trust

An irrevocable trust involves three individuals: the grantor, a trustee, and a beneficiary. The grantor creates the trust and places assets into it. Upon the grantor’s death, the trustee is in charge of administering the trust. This means that he or she is responsible for distributing the assets in the trust according to the grantor’s wishes. The trustee has an important job, as he or she must protect the assets. The beneficiary is the person who receives the benefit of the assets.

Assets placed into the trusts are considered gifts and cannot be removed at a later date. The grantor, however, does have the ability to create the exact terms and rules that others must follow. For example, the grantor may specify that the money be used for a specific purpose, such as college or a wedding.

Irrevocable trusts can be great tools for estate planning because an irrevocable trust removes assets from a person’s estate – while the person is still alive. Why would anyone want to do that? Because by doing so, it will remove the assets from being taken in a lawsuit, being taken by other creditors, or adversely affecting one’s ability to qualify for government assistance. However, it can also create more of a problem if they are not properly explained and assets that you need regular access to are placed in this type of trust.

Hammelman Law helps clients in Ashburn, Loudoun County, and Northern Virginia decide whether a will, trust, or combination of estate planning documents makes sense for their family.