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Estate planning involves making legal arrangements for your finances and healthcare if you become incapacitated or pass away. There are several tools you can use to achieve different estate planning goals. Arizona is a community property state.
One option is establishing a revocable living trust in Arizona. But is that type of trust right for you? This comprehensive guide examines the pros and cons of revocable trusts to help Arizona residents decide.
An Arizona living trust is a legal entity you create to own property, assets, or investments. As the name implies, it is changeable or revocable at any time. With a revocable trust-based estate plan, you would transfer ownership of your assets to the trust while you are alive.
You designate yourself as the trustee in charge of the trust assets and appoint successor trustee (or trustees) . You also name trusted beneficiaries who will inherit the assets upon your death. During your lifetime, you retain full control and can:
- Add or remove assets from the trust as desired
- Change or terminate the trust terms
- Adjust beneficiary designations
- Serve as the trustee to manage the assets according to the trust instructions
Because it is alterable at any time, a revocable trust provides flexibility if your needs or financial situation changes. Upon your death, the terms lock in and the assets transfer to beneficiaries without probate. A trust needs to be properly funded to avoid the probate process under the Arizona uniform probate code. A properly funded trust document avoids probate court under Arizona law and stay out of public record.
Here are some of the top benefits of this type of trust can provide as part of an Arizona estate plan:
Avoid Probate – One of the chief reasons people create revocable trusts is to avoid probate after death. If you solely own assets, they would have to pass through probate court before being distributed to heirs. But with a trust, your successor trustee can immediately transfer assets to beneficiaries. You can think of a trust document as a probate shortcut.
Prevent Conservatorship – A revocable trust can also prevent the need for court conservatorship if you become incapacitated. If you cannot manage finances alone, the trustee you chose steps in without court involvement.
Avoid Ancillary Probate – For Arizona residents who own real estate or assets in other states, a revocable trust sidesteps ancillary probate in those states. Out-of-state assets transfer to beneficiaries directly rather than needing local probate.
Privacy – Revocable trusts allow you to pass assets privately since they do not require probate. Probate proceedings become part of public court records while trust details can remain private.
Protection for Minor Children – If beneficiaries are minors, creating a trust enables you to include conditions about how and when they receive their inheritance. You can name one of your closest relatives to be the successor trustee for your children's trust.
Tax Benefits – Revocable trusts do not provide income tax benefits like irrevocable trusts. However, your estate may pay less taxes after death since assets are not subject to probate.
Control – Revocable trusts let you maintain control over property you transfer into it since you are the initial trustee. You can continue using trust assets as needed during your life. You have control over your entire estate. If you create an irrevocable living trust you will give away control.
Despite their benefits for many Arizona residents, revocable trusts also have some potential downsides to consider:
Cost – Attorneys often charge $2,000 to $6,000 to prepare a customized living trust in Arizona. You will also likely incur costs to transfer property titles and asset ownership to the trust. In the long term the cost of creating and maintaining an Arizona living trust is still much lower than probate or conservatorship. The probate process usually takes at least 8 months and cost between $5,000 to $10,000. It also opens the door for your heirs to fight creating additional litigation costs. A Conservatorship usually costs between $5,000 to $10,000 and is subject to strong court supervision that is reviewed every year. Both processes are extremely time consuming as well. You don't want to be a court appointed conservator for a loved one as well.
Complexity – Revocable trusts require more complex upfront planning and administration than a basic will. You must manage trust assets differently than you may be accustomed.
No Court Supervision – Because trusts avoid probate, they pass outside court supervision. This gives trustees more power which could potentially enable abuse by a dishonest trustee. Trust administration is much easier than the probate process.
Mis-funding – Forgetting to properly transfer ownership of assets into the trust is a common mistake. Failing to “fund” revocable trusts can defeat their purpose. The probate process than may be necessary. A common mistake is too add retirement accounts into a trust, that creates unnecessary extra taxes.
Still Need Will and Powers – In addition to an Arizona living trust, you will need ancillary documents like a last will and testament, financial power of attorney, health care directives, and a living will.
Because revocable trusts have pros and cons, take time to think carefully about your individual situation as you weigh using a trust as part of your Arizona estate plan. Here are some key factors to consider:
Your Net Worth – If your net assets exceed $100,000 or include substantial real estate, the probate avoidance benefits of a trust often outweigh the costs. For lower net worths, a basic will may suffice. our estate planning attorney usually recommends a trust for sure if you have more than $1 million in net worth.
Your Plans for Property – If you want to retain complete control over assets while living and ensure smooth transfers at death, a trust may be useful. Trusts also help you structure inheritance instructions. You can address how your real property and your personal property will be distributed in your trust legal document.
Your Tax Picture – While revocable trusts do not provide tax benefits, they will not increase your taxes either. Irrevocable trusts can reduce estate taxes but require giving up control. Estate taxes and federal estate taxes is something you should discuss with your estate planning lawyer.
Your Privacy Concerns – If maintaining privacy around asset transfers matters to you, the ability to stay out of probate makes trusts appealing. Probate proceedings enter the public record. The Arizona uniform probate code is making the probate process more challenging with the changes done in 2023. Assets held in trust are not subject to probate.
Your Health Status – If managing your own finances and assets is becoming difficult, a revocable trust enables naming a successor trustee to take over before incapacity. A personal representative should be named as well. Clients frequently choose their surviving spouse as successor trustee and personal representative as well. In case the probate process is necessary your personal representative will direct all your assets to the living trust in Arizona.
Your Family Dynamics – Blended families, multiple marriages, or estranged relatives can make simple wills more problematic. Trusts allow you to exert more control. An Arizona revocable living trust is specially beneficial for blended families with complex dynamics. It is one of the great estate planning tools to provide asset protection for children from a precious marriage. A shared living trust in Arizona or a family trust may be a good option for you. You should discuss what to create with your spouse and your attorney.
ALTCS and Government Benefits - if you are planning to apply for ALTCS and government benefits you want to work closely with an attorney that also does elder law. Creating a
As the pros and cons make clear, a living trust in Arizona offer important benefits but also carry costs and complications. Speak with an experienced estate planning attorney to get objective, personalized advice about your options. Be sure to consider your unique financial profile, health status, intentions for property, and family circumstances as you evaluate using a trust.
While not right for everyone, implementing a well-crafted estate planning strategy can provide Arizona residents with critical probate avoidance, privacy, and control over their legacy.
Take time to educate yourself on the intricacies and requirements of Arizona trusts. With wise counsel and planning, you can make informed decisions about whether adding a trust to your estate plan aligns with your needs and goals.
Talk to an experienced estate planning attorney today! The attorneys at Citadel Law Firm will be pleased to help. Call (480) 565-8020 of click here to schedule a free estate planning consultation. We will be pleased to help.
Our firm is transparent and we like you to know our attorney's fees before you even hire us to create a living trust for you . That is why we offer you a free consultation to help you create a living trust in Arizona.
