- A living trust is a legal entity, like a person or business, which can hold assets
- After the living trust's creator(s), called the Trustor(s), passes the trust can stay intact
- In Arizona living trusts can control how and when beneficiaries receive assets up to 500 years
- Trusts are initially managed by trustees and later by successor trustees
- Assets held in a living trust avoid probate
- Living trusts do not protect assets from lawsuits nor creditors
- No Contest Clauses can revoke an inheritance if beneficiaries legally challenge the trust
Revocable Living Trusts
Revocable living trusts are becoming a common estate planning tool for families in all stages of life. Younger families can use trusts to control how a simple life insurance policy is distributed to young beneficiaries or allow guardians to use the primary residence until children reach adulthood.
Families without dependent children are often concerned with avoiding probate when one passes. $75,000 of equity in real estate will trigger a formal probate in Arizona unless property is in a living trust or a beneficiary deed is used. $75,000 of non-real estate assets that do not already have a beneficiary listed will be subject to probate unless the assets are placed in a living trust.
Creating a Living Trust
When setting up a living trust, people typically name themselves both the Trustor(s) and Trustee(s), which allows people to maintain control of their assets.
While the Trustors are living, assets may be added or removed from the living trust. The Trustors are the initial beneficiaries of the living trust. Assets are only distributed to other beneficiaries once all Trustors are no longer living.
In Arizona a living trust may remain intact up to 500 yrs after the Trustors pass. In most cases, the trust terminates once all the trust's assets have been distributed.
Trustors Create and Amend Living Trusts
Trustors are also known as Grantors or Settlors. Once the living trust is created, there is little for the Trustors to do except amend language when needed. If both Co-Trustors are living, both Co-Trustees are needed to create an amendment. Depending on how the living trust is written, a surviving spouse can amend the trust alone. When all Trustors have passed, the language in the living trust may no longer be amended.
Trustees Manage Trust Assets
Trustees manage all trust assets in the best interest of the Trustors. Couples typically name themselves Co-Trustees so either can manage accounts and other assets. A few duties include:
- Manage bank accounts
- Buy / sell real estate
- Borrow / lend money
- Purchase insurance
If the initial Trustee(s) is/are incapacitated, Successor Trustees take over management of the living trust, similar to financial powers of attorneys. Once the Trustors have passed, the Successor Trustees follow the directions of the trust for distribution of the estate.
Transferring Assets To Living TrustsThis step is crucial when creating a living trust to manage an incapacitation easier and avoid probate. Signing legal documents alone does not transfer all your assets to your living trust. Some legwork is required on your part.
Real estate New deeds must be prepared to transfer property to your living trust. We prepare deeds for Arizona properties with your estate plan. Out of state deeds can be prepared by a title insurance company in the county of your property.
Bank accounts Take all estate planning documents to the bank so they record and copy appropriate information for their records. Your account numbers should not change and your checks can keep your name on them. Bank statements will now reflect the trust's name instead of your name as the owner.
Investments Non-qualified money (meaning after-tax money that you invest and pay annual capital gains taxes) may be transferred into your trust in the same manner as transferring bank accounts.
Savings bonds Paper bonds have to be mailed to the Treasury to reissue them in the trust name (see http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eereplace.htm).
Before doing this, consider converting paper bonds to digital bonds first (if that is desirable) so bonds will not need to be mailed to the Treasury twice. Digital bonds might make it easier for original and successor trustees to manage. To convert to digital bonds, see http://www.treasurydirect.gov/indiv/research/indepth/smartexchangeinfo.htm.
(Thank you to Angela B. for this information)
Personal property without titles Living trusts typically have one page assigning all present and future non-titled assets to the trust, including but not limited to jewelry, art, furniture, electronics, firearms, etc. You will not need to list out each item unless you want to specify a beneficiary.
Clients are encouraged to contact us when assistance is needed.
Some Assets Remain Outside Living Trusts
Both retirement accounts and life insurance avoid probate when accounts and policies have living beneficiaries listed.
Retirement accounts IRA's, 401(k)'s and other tax-deferred assets remain outside the living trust. Transferring them to the trust can cause a taxable event. Your financial advisor would likely stop you before you could accidentally make the change. There are additional tax advantages if beneficiaries are listed on the account rather than listing a trust as the beneficiary.
Life insurance Ownership of the policy is not changed from the person to the living trust. Instead, the living trust can be named the backup beneficiary of policies. If your trust has age-dependent distribution clauses, young beneficiaries are prevented from spending the insurance policy's payout until a more mature age is reached.