What is Living Trust and How Does it Work in Arizona?

A living trust is a legal document that allows you to transfer your assets and property to a trustee; the trustee then holds and manages these assets on behalf of designated beneficiaries during your lifetime. After your death, these assets are then transferred to those beneficiaries.

In Arizona, a living trust is one of the most commonly utilized trusts, as it offers numerous benefits, including asset protection, probate avoidance, and privacy.

Keep in mind, there are different types of trusts (EX: Living, Irrevocable, Special Needs, etc.). Your estate planning attorney can draft a trust that’s best suited to your goals, wishes, and personal life circumstances. If you’re looking to create a trust, contact one of our experienced attorneys today for a consultation.

Why is a Living Trust Important in Arizona?

By establishing a living trust in Arizona, you can exercise greater control over your assets, protect your wealth, and provide for your loved ones in a more efficient and structured manner.

Here are four benefits of a living trust:

1. Avoiding Probate- By establishing an Arizona living trust, assets can be transferred to beneficiaries without going through probate, allowing for a smoother and more efficient distribution. Without this, you would need to go through a lengthy, and costly probate process, which can take months or years to finalize. The probate process involves validating a will, settling outstanding debts, and distributing assets, but you can avoid probate by incorporating a living trust in your estate plan.

2. Privacy- A living trust can be kept private. Unlike a will, which becomes public record upon probate, a trust allows you to keep the details of assets and beneficiaries confidential. This can be particularly beneficial for individuals who value their privacy or have complex family dynamics.

3. Asset Protection- A living trust allows for better control over the distribution of assets. The trust agreement specifies how assets are managed during your lifetime and how they should be distributed after your passing. This also allows you the ability to set specific conditions, such as distributing assets in stages or for specific purposes like education or healthcare. Your attorney can also draft your estate plan so that it reduces, or eliminates, estate taxes.

4. Incapacity Planning- In the event that you become incapacitated or unable to manage your affairs, a successor trustee can step in and manage financial matters according to the instructions outlined in your trust. This would ensure that your financial affairs are being managed for your benefit without the need for a court-appointed conservatorship.

Understanding the Different Types of Trusts in Arizona

There are numerous types of trusts, and each one serves a different purpose. It can be difficult to know which type of trust would best suit your needs, but the estate planning attorneys at Brown & Hobkirk, PLLC can help you through the process.

Here are a few examples of the most common types of trusts that may be available to you:

1. Revocable Living Trusts- Also known as a living trust, and as discussed above, it helps you maintain control of your assets while you are alive. It provides a great deal of flexibility, as it can be updated and changed anytime, and it also avoids probate by allowing your assets to be passed to named beneficiaries after your death.

2. Irrevocable Trust- Unlike a revocable trust, this type of trust can’t be modified or changed after it’s created, except under certain circumstances. While the lack of flexibility may not be ideal for many people, this type of trust can provide potential tax shelter and creditor protection.

3. Charitable Trust- A charitable trust is created to benefit a charitable organization, but it can also provide you with a tax advantage while supporting causes important to you and your family.

4. Special Needs Trust- A special needs trust allows you to set aside funds to care for the needs of a disabled person, while also preserving their eligibility for government benefits. For example, if you have a child with autism, you could create a special needs trust for their care; this would allow your child to still be eligible for services provided through Medicaid.

5. Marital Trust- This type of trust is typically used to provide for a surviving spouse. It allows you to transfer assets to the trust, so that your surviving spouse has access to income or principal during their lifetime; while provisions can also be made for the remaining assets to pass to other beneficiaries upon your surviving spouse’s death.

Determining the best type of trust to use can seem like a daunting process, but it’s much easier when you collaborate with an attorney who is skilled and experienced in estate planning.

Common Misconceptions about Trusts

Misconceptions about the purpose and function of trusts can lead to an incomplete or inadequate estate plan. Some of the most frequent misconceptions I hear are:

• Trusts are only for the wealthy- One of the most common misconceptions is that a trust is only for the 1% elite. However, a trust is a great estate planning tool, regardless of one’s economic status. If you’re concerned about the cost to create a trust, speak to your attorney, as the cost depends on the type and complexity of the trust.
• Trusts eliminate all taxes- Trusts don’t automatically eliminate all taxes. The type of trust, the value of your assets, and applicable tax laws will determine your tax burden. Your attorney can assist you with understanding the tax consequences and with implementing appropriate strategies.
• Trusts are only for old people- Another frequent misconception is that trusts are only for the elderly. This couldn’t be further from the truth; a trust is useful for people of any age. A trust can help you manage and protect your assets during your lifetime, provide for loved ones in the event of your incapacity, and offers you flexibility to account for any changing life circumstances (EX: marriage, children, divorce, etc.).
• Trusts relinquish control of your assets- Yes, your assets are placed in a trust, but this is done according to your wishes. It’s important to note that so long as a revocable living trust is being used, the trust assets can be accessed and amended by you at almost any time.

Believing these misconceptions can be detrimental to your estate plan. It’s best to seek the advice of a knowledgeable estate planning attorney who is experienced in tailoring a trust to your specific needs, financial situation, and life circumstances.

Contact Us

As a premier estate planning law team, Brown & Hobkirk, PLLC has helped thousands of people navigate the complicated process of estate planning.

We provide comprehensive estate planning and trust administration services. We look forward to helping you with all your estate planning needs! Call today to schedule your consultation with an experienced estate planning attorney!