There are several different types of trusts, capable of helping you accomplish a wide range of planning goals. Together, they represent some of the most powerful tools in the estate planner’s toolbox.
One of the most commonly used trusts is called a Revocable Living Trust. An Arizona Revocable Living Trust gives you complete control over your assets while you are alive and how they will be distributed after you pass away. One of its primary advantages is that it allows your estate to avoid the needlessly expensive, time-consuming, frustrating, and public distribution of assets involved in the Arizona probate process. A Revocable Living Trust also lets you adjust the management and distribution of your assets as your financial and personal situations change over time. As the trust’s creator, you may appoint any competent adult as trustee. The trust will establish the guidelines for how the trustee administers and distributes trust assets.
At Cholewka Law, our Gilbert Arizona trust lawyers can design a customized Revocable Living Trust that addresses your particular needs, goals and concerns. We can help ensure that you give what you want to whom you want in the manner you want. We can also assist your successor trustee to administer your Arizona Revocable Living Trust to ensure your wishes are carried out to the letter of the law. It is important to note that your trust should be reviewed periodically to make sure it still addresses your needs and concerns and is properly funded.
You can plan for mental disability and death together with a document known as a revocable living trust. You can control your property when you’re alive and mentally competent, choose the person to control your property and investment decisions in the event you can no longer do so, and create a list of instructions to loved ones regarding your assets after you die. This also helps ensure your property avoids court-supervised probate.
When passing on your estate to your heirs, a will or other estate planning tools can be used. A revocable living trust is one of the best choices.
This kind of trust is a way to avoid probate — the legal process to validate a will — and offers other before-death and after-death advantages. If such a trust is right for you depends on your circumstances. An estate planning attorney is the one to help you decide.
A revocable living trust is a written agreement designating a person or persons to be responsible for managing your property. It is “living” because you set it up while you are alive. It is “revocable” because you can change it.
Among the advantages:
These trusts are not for everybody, but if you want one, it is important that a lawyer with expertise in the area create the trust for you. Costs vary. While it will cost more than preparing a will, there will be savings by avoiding probate.
Becky Cholewka: Did you know there are about 30 to 40 types of trusts? They mainly fall into two categories revocable and irrevocable trusts. That is exactly what it sounds like.
A revocable trust, you can change, amend, or revoke. An irrevocable trust, you cannot.
One of the questions I get all the time is, “Becky, should I have a revocable trust because if I get in a car accident, I want to make sure all of my assets protected?” Actually, when you have a revocable trust, and you are still alive, you still have full control over your assets. What that means is you have absolutely zero protection as far as creditors go, in that instance.
If you have a revocable trust, you get in a car accident, and you get sued, any assets that are titled in your individual name or that are in the name of your revocable trust could potentially be lost to those creditors.
The only type of trust that will allow you to have creditor protection would be in an irrevocable trust.
Most people, when they do estate planning, they start with a revocable trust. That’s because they don’t want to give all their money, while they’re alive, away right now and lose control over it.
That’s why most people just do revocable planning, to make sure they’re avoiding probate, have planned for incapacity, if something should happen, and to have their trust turn into an irrevocable trust when they die.
That means, now, any moneys they’re leaving to their spouse, or their children, or grandchildren are in an irrevocable trust. Those beneficiaries and loved ones will have asset protection in the moneys that you leave them. While you’re alive, monies in a revocable trust, no creditor protection.
If you are considering leaving property or other assets to heirs by means of a trust, one of the most important decisions to be made is who will run the trust once you are gone.
That person — your fiduciary — will be responsible for managing the assets in the trust and making distributions to your loved ones in accordance with your desires.
The trustee you pick must be willing to do what you want no matter his or her personal feelings about them.
In many cases, people choose a family member, close friend, or business associate to do the job, which can require a good amount of time to do properly. Others prefer to hire a professional, such as a bank or trust company.
The decision on who to pick as a trustee is critical, says an article by Fidelity.
Trustees usually get paid a fee, and professionals may have minimum fees they charge no matter the size of the trust. If the amount of money in the trust is small, say, under $50,000, it may be best to choose an individual to do it, since the fee charged by a company would likely be too large for the size of the trust.
But even large trusts don’t necessarily need professional management.
If the trust is straightforward without a lot of complicated provisions, it may be best to have a family member or close friend run it. Still, the person you choose must have the skill to do it right.
If there is friction among family members named in the trust, it may be prudent to hire a professional because the workload can turn out to be very heavy if the beneficiaries do not get along.
A Revocable Living Trust is the single most effective estate and disability planning tool. About 20% of Americans have invested in creating this valuable planning document and yet many of those do not follow through with the next important step and “fund” their trust.
A trust is like an impenetrable vault. It can be fireproof. It can be smoke proof. It can be burglar proof. But if there is nothing in the vault, that vault does not protect anything. It is merely an expensive box.
A trust is like a vault. It can be the most comprehensive and individualized estate document, but without any assets placed inside it, the trust protects nothing. Your entire estate will now go through the expensive and time-consuming probate process.
What is Trust “Funding”?
Funding your trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. You will also change most beneficiary designations to your trust, which means these assets are transferred to your trust at your death.
Which assets should I put in my trust?
The general idea is that all your assets should be in your trust. However, there are a few assets you may not want in, or that cannot be put into, your trust.
Generally, assets you want in your trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also want to change most beneficiary designations to your trust so those assets will flow into your trust and be part of your overall plan.
You may exclude some assets from your trust such as IRAs and other tax-deferred retirement accounts, incentive stock options and Section 1244 stock, and interests in professional corporations. In Arizona, vehicles are typically not re-titled in the name of your trust. Also, your attorney may have a valid reason for leaving a certain asset out of your trust, such as avoiding a potential lawsuit.
You should discuss funding with your attorney. Depending on your estate planning goals and types of assets you have, your attorney will provide guidance as to what assets should be titled in the name of your trust, and which assets should not be. Making the wrong decision could have tax or probate consequences.
Who is responsible for funding my trust?
You are ultimately responsible for making sure all your appropriate assets are transferred to your trust. Your attorney may assist you with transferring all or some of these assets.
How difficult is the funding process?
Funding is not difficult, but it can be cumbersome and take some time. Many people get sidetracked or procrastinate, which is why their trusts remain “empty.” Just make funding your trust a priority and keep going until you’re finished. Make a list of your assets, their values, and locations, then start with the most valuable ones and work your way down. And remember, each time you purchase or receive an asset, determine with your attorney whether it should be placed in your trust.
What happens if I forget to transfer an asset?
If you have a trust, you should also have a “pour over will” that acts like a safety net. When you die, the will “catches” any forgotten asset and “pours” it into your trust. The asset will go through probate first, but then it can be distributed according to the instructions in your trust.
Is a trust necessary for you or can you get by with a simple will?
There are several factors to consider when deciding if you should spend the money needed to set up a trust.
Here are a few, says an article in Forbes:
Trusts are an essential estate planning tool for many individuals but may not be suitable for every estate plan. Trusts are complex legal documents and should only be prepared by a lawyer in this specific area of law. There are many different kinds of trusts, and they are established for various reasons. This post provides a very brief overview of the other uses of trusts. Every individual has unique needs and goals and only a consultation with an experienced estate planning attorney can help you understand whether a trust, or a variety of trusts, is right for you.
Trusts for Parents
Trusts can be beneficial for parents of young children because trust allows parents to create a plan for their kids’ financial future. A trust designates a trustee to manage money for the benefit of the children. This structure bypasses the need to have a court appoint a Conservator for each minor child, who must then make yearly reports to the court. It also allows the children to receive their money at any age the parent chooses, rather than the Arizona state statute of 18.
Trusts to Avoid Probate
Trusts can be valuable tools to avoid the probate process. Any assets held in trust are exempt from probate and can be managed outside of the court’s oversight. This is especially useful for people who own property in multiple states as it can avoid the need for probate in multiple jurisdictions. The cost of opening a probate through the court varies in each state and depends on the size and type of assets within the decedent’s estate. In Arizona, the average probate roughly costs $4,000-$8,000 and typically takes 9-18 months.
Property drafted trusts can also bypass the need for “living probate.” This is the probate court process of appointing a Guardian or Conservator for someone if they become incapacitated. These legal actions range from $4,000-$6,000 each in Arizona. Living probate is unnecessary when someone has a properly drafted trust, with a Successor Trustee who can manage someone’s assets if incapacitated and with proper healthcare documents.
Trusts for Medicaid Planning
Trusts can be created to protect assets of someone who may need state Medicaid assistance in the future. Assets held in these types of trusts for a period of five years or more are not counted as assets under Arizona’s Medicaid eligibility rules. This means a person can receive Medicaid benefits as well as keep their assets for their ongoing needs.
Whether a trust is appropriate for your own particular situation will depend on many different factors. An experienced elder law attorney can help you decide whether a Medicaid trust is appropriate.
Maintaining Your Trust
A trust should be maintained and updated just like the rest of your estate planning documents. For your trust to work properly, updates and maintenance should happen when:
Every parent should consider a trust to provide for the financial well-being of their minor children in case some tragedy makes it necessary for someone else to care for them. A trust can be funded while the parent is still alive or established after the parent dies. Often, a trust established upon the death of a parent is funded by life insurance proceeds and other estate assets.
Will the Guardian Need Funds?
In deciding whether to provide for a guardian in your trust, consider who will care for your children and whether they are financially secure. For example, if your parents are going to care for your children and they are financially secure, then you might not need to set aside money for your guardian in your trust as you would if the guardian is not financially secure.
Diversify your Assets
There are many ways to provide for the financial future of your children. One option is to put all the estate assets in a trust. Another option is to start investing in a 529 College Savings Plan or to purchase stocks and annuities for your children’s future. The 529 will continue to grow and will provide money specifically for higher education costs for your children. The most significant benefit to putting money in different assets for your children is diversifying the assets so a downturn in the market won’t wipe out all the assets at once.
Becky Cholewka: If you choose to have a trust, one of the most important decisions that you are going to make is who is going to act for you as your successor trustee.
They are the ones that are not only going to be able to manage and control and invest the monies that you have, that are in your trust, but also make the decisions of how to spend that money within the trust.
You need to make sure that person is trustworthy, number one. You need to make sure that they are going to follow your wishes, and that you’ve spoken to them so that you’ve been able to share your wishes with them.
It’s not a light decision to make and, again, it shouldn’t be a decision based on birth order. Meaning, just because your oldest son is your oldest son, doesn’t mean this might be the right position for him to take.
You really want to think about who’s good with money. Who’s good at working with financial professionals, for example, to invest properly those monies for you?
Who’s someone good at paying their own bills in a timely manner, would be another thing to consider. Who’s someone who can also take questions from other family members, and keep them updated as to formal accountings that need to happen every year?
Think about those types of skills when you’re determining who is going to be your trustee of your trust.
We’ve been doing estate planning long enough to see how our plans work when the unexpected happens. We are always sad to lose a client but seeing how our plans help a family through a tragedy reassures us that what we do matters… and works.
In May, we finished a trust plan including health care documents for Mary and Mark (names are changed for confidentiality.) In June, Mary encouraged her husband to see a doctor for his nagging cough and lack of energy. In July, Mark passed away after a week-long hospital stay.
Mary had to rely on Mark’s Health Care Power of Attorney that allowed her to make his medical decisions, HIPAA release that allowed her access to his medical information, and looked to Mark’s Living Will in making the decision to take him of support.
With their trust plan, we have avoided probate and are easily completing a few steps to finalize the trust administration. Mary did not have to come in and see us right away after Mark’s death. She took the needed and necessary time to spend with her children and grandchildren.
When Mary did finally come in to see us, we were expecting to grieve with her. But instead, Mary spent the time by graciously thanking us for what we had done for her. Not only did the documents work, but she was reassured that she did the best for Mark at the end of his life. A bad situation was made better.
We shed a few tears later that day. Not only for the loss of our client. But also in knowing that the documents we provide our clients profoundly matter.
Estate planning is all about protecting yourself and your loved ones. Essential to estate planning is ensuring your goals are met, such as avoiding the probate court and transferring assets to chosen beneficiaries while creating the smallest possible tax burden for them.
Cholewka Law has been providing thoughtful legal representation to families in Gilbert and surrounding communities since 2010.
Every adult should have a will. However, a will and estate planning are not the same things. While they generally go hand-and-hand, a will is just a small part of a comprehensive estate plan. For most people, a well-prepared estate plan involves much more than only a will.
Sibling disputes often erupt after a parent dies, and it is time to divide up the assets of an estate. Sibling disputes can result in lengthy and expensive legal actions. However, a little forethought from parents can avoid such disputes, or they can be addressed by siblings who employ savvy strategies after a parent dies.
Arizona law gives some protection to a surviving spouse and minor children against disinheritance. It is not possible to entirely disinherit these people. If, however, you make a Will and leave all your estate to other people or organizations, your spouse and minor children may receive only the minimum amounts guaranteed by law.
Note: One-half (½) of your community property belongs to your spouse, and you cannot dispose of that portion by your Will. Additionally, joint tenancy with right of survivorship property automatically belongs to the surviving joint tenant or tenants upon the death of the first joint tenant. These matters are rather complicated, and if you have questions about them, you should see a lawyer. It is possible to completely disinherit an adult child (one who is age eighteen (18) or older).
Pets cannot own property, so you cannot leave property directly to your pet. However, you can create a trust for your pet’s benefit, which can ensure your pet has a good life after you die. Use your estate plan to make sure that your pet goes to a caring person or organization, and the new caretaker has the resources to take good care of him or her.
With people increasingly living their lives online, digital assets are quickly becoming a substantial component of many people’s assets. Adding your passwords and security details to your estate binder with directions for retrieval is a great way to protect your assets and ensure that your digital currency is not lost. You should give your Power of Attorney, Trustee, and/or Personal Representative of your will the legal right to handle and control your digital assets.
Careful estate planning can include a Personal Representative that you trust with all your online accounts and passwords. A thorough discussion with your Attorney and your Personal Representative can help you decide if you should keep these accounts after your death or have them deleted. Some platforms, like Facebook, allow you to make these decisions before you die by adjusting your account settings.
Not necessarily. A dementia diagnosis doesn’t necessarily mean you’re unable to make important decisions at a certain point in time. But as symptoms of dementia get worse over time, you may no longer be able to make decisions about things like your finances, health, or welfare. This is sometimes referred to as lacking mental capacity.
If you are worried about this possibility or if you have been given the news that you have dementia, you should immediately call your Attorney to discuss your options.
Yes! Planning for your care and estate when you are older can be more complicated if you don’t have children since children often fall into the role of backup agents and caregivers.
It is also important to consider the financial impact your death will have on your loved ones. Through discussing this with your estate planning attorney and financial planner, you can determine whether you have enough life insurance to care for your loved ones.
Death planning includes instructions for paying your debts and who will receive the balance of your assets. This is an important aspect of a solid estate plan and one in which our legal team will be more than happy to help you prepare.
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