Arizona Wills and Trust Attorney
The Revocable Living Trust
What is a Trust?
A Trust is a contract or agreement that creates an ownership structure, and legal ownership of any asset you put into a trust is held for the benefit of a designated beneficiary. A basic trust consists of three parties necessary for creation, the 1) “trustor,” who initially grants assets into the trust and begins creation, the 2) “trustee” or manager of the trust, who is responsible for making decisions about assets in the trust, and the 3) “beneficiary,” who receives the benefit of the trust’s assets. The revocable living trust establishes the trustor as a beneficiary, and allows the “trustor” to retain the right to alter or revoke the agreement. The original “trustor” is normally also the original “trustee,” and the revocable living trust allows that you the right to access the assets held in trust without restriction. A revocable living trust also has flow through taxation, meaning that assets are attributable to you, and taxed at your individual level. (More complex trusts are taxed differently).
Types of Trust
There are many different names for trust that you may have heard, but there are two with significant differences in how you can alter them. A revocable trust is a type where you can change any of the terms, and even cancel in its entirety. An irrevocable trust is one where many terms cannot be changed, and it cannot be cancelled or “revoked” by its creators. Revocable trusts are common forms of trust in Arizona. Many estates are created as revocable because the trustors are living and want to access their assets while they are still able to do so. Many irrevocable trusts are created at the trustors’ death, with terms that lock in the trustors’ intent so that beneficiaries and terms of distribution remain the same.
Why Should I Put My Assets in a Trust?
Many people would rather not go through probate because the court supervised distribution of assets can be intrusive, costly, and time consuming. A trust avoids probate, and gives you peace of mind by letting you determine not only who receives money, but how and when the beneficiary will receive it. A trust protects your privacy by keeping your assets out of the public eye while in probate court, but is also governed by law and allows for safe distribution. Trusts assist with those assets for which you have specific requests, allowing you to plan for taxes or protect your heirs. Certain trusts can take advantage of tax elections that other planning methods such as a will cannot do, in order to save in estate taxes and/or income taxes. Many families also worry about their assets ending up in the wrong hands. An estate planned through a trust can protect assets from undesirable claims from creditors even after you are gone. Through planning, you can create a framework that supports your loved ones, but that also helps to grow your wealth for them after you are gone. Trusts provide creative options for distribution, but many parents simply want to be sure that their eight-year-old child receives money to pay for health and education until the child is old enough to be responsible.
How Does a Trust Work?
Trusts avoid probate because they are private contracts that transfer ownership prior to your death, so that the court does not have to. A trust allows the“successor trustee” (next in line after the original trustor/trustee) to immediately step in and access accounts and information, but only in accordance with the terms you’ve built into the trust. The successor trustee is a “fiduciary” (person entrusted with administration), with responsibilities and obligations that are governed by state law, and by the terms of the trust itself. The terms of the trust specify distributions to the beneficiaries, and determine how the trust will be administered. Some trusts distribute assets upon death, others provide protections that force the trust to “continue” until the protective provisions are satisfied. The great thing about a trust is the terms are yours, you create the trust and determine how you want it distributed.
Last Will and Testament
Last Will and Testament (Traditional “Will”)
The “Last Will and Testament” is the more commonly understood will in which property is generally disposed of. The last will allows for distribution according to your wishes, in a process known as probate. Probate is the procedure through which a court verifies the validity of the will, and for a small estate takes approximately 6 months to complete. It is a common misconception that items distributed according to a will avoid probate; however, the will is merely admitted to probate for court supervised administration according to the will’s terms. The last will and testament is where you delegate:
1) how to distribute any assets not in trust
2) guardianship over your children in the event of death
3) the representative charged with distributing assets at death.
Many people have collectibles, family heirlooms, weapons, and other valuables they would like to distribute. Without a will, the court may distribute those items or order their sale for distribution to heirs. Married couples are not immune to challenges either; parents, siblings, and children may look to claim assets not disposed of through a will. After any life changing event, you should update your will to reflect your wishes accordingly. Without a last will, the court also decides the guardianship over your children and determines how they will be taken care of. To sidestep a potentially detrimental situation, parents should designate someone they know and trust to take care of their children. A main component of the last will is the election of a representative (your executor, or personal representative), the representative’s sole job is to enact your wishes through administration of the will. Without a will, the court names a representative for you.
Is a last will and testament really necessary?
A last will is necessary in every stage of adult life, and should reflect your wishes so there will be no question of intent following your death. The last will and testament specifies the person who takes care of your estate in probate, and will prevent your life’s work from being distributed by a court that lacks knowledge of your wishes. Without a will, your family may be forced to await a court ordered representative at a time when the family will want to be relieved from any unnecessary burden.
Living Will (Final Directives)
The “Living Will” Includes directives for end of life care and functions as an advanced health care directive. The “living will” instructs the person designated in the Healthcare Power of Attorney. Generally, through the living will, you will make decisions about your care in the event of a situation where you are in a persistent vegetative state or where there is no likelihood of recovery. Many people fear living in a mental state where there is a limited quality of life, or limited to no mental activity. For some, the toll of medical care at that point is excessive, and those people would rather not sustain existence. Others prefer that they receive all medical care necessary to sustain life. Each of these options is available through the Living Will, and through planning you have the opportunity to choose. Those who do not plan rely on a designated priority list created through state law to determine which person makes the available decision.
Is a Living Will necessary? Why make final directives?
So many people discuss end of life scenarios but never make concrete plans for unexpected events. A “living will” is necessary to address those events for which loved ones will want every decision to be as easy as possible. It is difficult to deal with crisis, and sometimes the potential exists for a fight over whether or not to provide life sustaining treatment. We seek to provide solutions for potential problems before they occur so that those leaving a legacy can do so in peace.
Durable Power of Attorney
Durable Power of Attorney
The Durable Power of Attorney (DPOA) is where you designate an agent to make financial decisions on your behalf. The DPOA can grant the agent immediate power over your affairs or power that does not become effective unless you are deemed incapable. The more common version is the latter, many clients prefer control over their own accounts and would rather not grant authority before an emergency occurs.
However, A DPOA granting immediate power can be helpful for those who want a loved one take care of their affairs in order to forego financial stressors later in life. Clients who move or travel frequently might also consider a power of attorney to safeguard and grow their assets while away in another state or country. More commonly, clients seek to grant power that only goes into effect in the event of an emergency. With proper estate planning, loved ones will not have to struggle to make sure everyday bills and costs are taken care of. If an emergency does occur, the durable power of attorney ensures that care is taken, so that when the situation improves your family can resume normalcy with as little financial difficulty as possible.
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