What is Trust?
A trust allows you to provide for family members and other loved ones while maintaining a degree of control and ensuring that your beneficiaries get the full benefits you intended. A trust can be a powerful tool for:
- Passing property after your death with greater flexibility to direct how the assets are managed and paid out
- Providing for a family member who is disabled or unable to manage their own finances
- Keeping assets in the family across generations
The trust attorneys at Lincoln & Wenk have the experience to set up the right trust to protect your family, and the compassion to help you navigate the sometimes sensitive family issues surrounding trust and estate issues. To learn more about how we can help you find the right solution for you and your loved ones, call 623-294-2464 right now.
How Trusts Work
A trust begins when the person establishing a trust, called the “grantor” or “trustor,” creates the trust and transfers property into it. The trust may be revocable, meaning that the trustor can change their mind and take the property back or change the beneficiaries and/or terms of the trust whenever they want. Or, it can be irrevocable. When the trust is irrevocable, the trustor gives up the right to the property when it’s placed in the trust and can’t take it back.
A trust also requires a trustee, who manages the trust assets, and at least one beneficiary. When the trust is revocable, the trustor often serves as trustee during their lifetime. But, they can choose to appoint someone else trustee, and they must provide for a successor trustee to manage the trust when they are no longer available to do so.
A living trust is probably the best known type of trust. This type of trust is often used in place of a will to transfer property after the trustor’s death. In fact, you will sometimes see this type of trust described as a probate avoidance trust. Here’s how it works.
The trustor of a living trust is typically also the trustee and the beneficiary during their lifetime. They transfer all or most of their property into the trust. This requires some administrative work. For example, if the trustor wants to transfer their vehicles into the trust, those vehicles will have to be re-titled in the name of the trust. They’ll also need to change the ownership of other assets they want included in the trust, including bank accounts and real estate.
Because the trust is revocable and the trustor is also the trustee and beneficiary, they remain free to do as they please with the property in the trust. During the trustor’s lifetime, they can add property to the trust, sell property in the trust, give away property in the trust, and use trust assets for their own benefit in any way they choose. In simple terms, the use and control of the assets is exactly as it was before, except that when assets are transferred, it’s done in the name of the trust.
The terms of the trust will include a successor trustee and successor beneficiaries. When the trustor passes away, the successor trustee steps in as manager of the trust. And, the trust is managed for the benefit of the successor beneficiaries. Depending on the terms of the trust, this may mean that assets are transferred directly to beneficiaries and the trust is terminated. This approach is much like the process of passing property through a will, but does not require probate.
In some cases, though, the trustor may want to spell out specific terms for the way the assets are used. For instance, they may choose to limit the purposes trust funds can be used for, or provide for funds to be paid out at intervals or on certain landmark dates. When you pass property using a will, that property is transferred free and clear to the beneficiary to do with as they please.
Other Types of Arizona Trusts
There are a wide variety of other types of Arizona trusts. The best way to find a trust structure that suits your needs is to meet with an experienced trust attorney and explain your goals. Some other common trusts in Arizona include:
Special Needs Trusts
A special needs trust offers a way to provide some assistance for a loved one who is disabled without impacting their access to much-needed public benefits such as Medicaid coverage. Funds in special needs trusts can only be used for certain types of expenses, such as medical expenses not otherwise covered, personal care, clothing, and education. However the funds in a properly constructed special needs trust are not counted for determining eligibility for public benefits.
A special needs trust may be funded by a family member or other benefactor or by the beneficiary. Imagine, for example, that someone who was disabled by a motor vehicle accident received a settlement that was not enough to provide for them, but large enough to disqualify them from public assistance. Those funds could be placed in a special needs trust to preserve eligibility.
The requirements for this type of trust are very specific, so it is important to work with an attorney who has a thorough knowledge of the relevant law.
Tax Management Trusts
Most Arizona residents won’t have to pay federal estate taxes, especially with the current high threshold for tax liability. But, the provision that substantially increased the amount of assets that can be passed tax-free is set to sunset in 2025. So, tax protections may become important to more Americans in the next few years. Arizona law allows for several types of trusts that can help minimize the tax burdens.. Two popular types used by married couples to minimize or avoid tax liability include:
- A/B trusts, which split into two trusts when one spouse passes away
- Disclaimer trusts, which allow the surviving spouse to disclaim inherited assets into the trust, avoiding tax liability
Give Yourself the Advantage of an Experienced Trust Attorney
When you’re looking for the best way to provide for your family and other loved ones, whether during your lifetime or after you pass away, there are many variables to consider. When you talk to an experienced estate planning attorney who creates trusts, you’ll have the opportunity to learn about your options and the pros and cons of each. Your attorney may raise issues you hadn’t considered, or offer options you weren’t aware of.
At Lincoln & Wenk, we’re committed to finding the best solutions for you and your family, based on your circumstances and goals. To learn more about how we can help, call 623-294-2464 or fill out the contact form on this site.