How Does a Family Trust Work in Arizona?
If you’re looking to protect your assets for your family after you die, you’re probably wondering, “How does a family trust work in Arizona?” Family trusts have several advantages over wills, but you might have trouble understanding all its nuances, especially considering Arizona law. Keep reading to discover what the competent trust lawyers in Arizona at Lincoln & Wenk think you should know about a family trust, its benefits, and its disadvantages.
What Is a Family Trust?
A family trust is a type of living trust that protects your assets during your life and, upon your death, distributes those assets according to your terms rather than forcing your family to undergo a lengthy legal process called probate. Probate is the administration of a person’s will, and having a family trust helps avoid the cost and stress so often associated with this process. Whereas a living trust designates beneficiaries outside your family, you set up a family trust specifically for assets you want to give your family after you die.
You can create two types of family trusts, each of which has advantages and disadvantages to ask your lawyer about:
- Irrevocable family trust: You cannot alter or cancel an irrevocable trust once you establish it.
- Revocable family trust: When establishing a revocable trust, you can change the terms or cancel it even after you’ve signed the document.
As opposed to a will, a family trust can dictate what happens to your assets if you’re alive but incapacitated.
Parties Involved in a Family Trust
To establish a trust, you require the following categories of people:
- Grantor: Also called a settlor, a grantor is the person who establishes the trust and whose assets the beneficiaries receive upon death.
- Trustee: This is the person or organization administering the trust, charged with carrying out its terms.
- Beneficiaries: In a family trust, beneficiaries may include surviving spouses, children, or siblings. The trust establishes one or more people who will receive financial and other assets according to the terms of the trust.
Assets You Can Put in a Family Trust
You can put almost any type of asset into a family trust. The following are the most common assets people add to a trust:
- Real estate holdings, even with an existing mortgage
- Monetary accounts, including mutual funds, bonds, stocks, and bank holdings
- Small businesses and LLC shares
- Patents and copyrights in your name
- Antiques, art, and furniture
- Marketable securities like gold, silver, gems, and jewelry
- Collectibles, such as coins, stamps, and more
- Personal property that has sentimental value but doesn’t have monetary value
With a revocable trust, you can add or remove assets whenever you see fit. With an irrevocable trust, carefully consider what you’re adding because you cannot remove it.
Arizona Laws Governing Family Trusts
How does a family trust work in Arizona? Compared to many other states, Arizona has a low threshold for probate. Every state has a limit concerning the minimum value of an estate to trigger the probate process after death. If a professional establishes that the value of your estate is lower than the threshold, your loved ones can distribute your assets without probate.
Probate thresholds range from $10,000 to $275,000. Arizona triggers probate proceedings when you die with at least $100,000 in real estate worth or $75,000 worth of personal property. Therefore, if you own a house in Arizona, you’d likely benefit from a family trust.
Arizona has the following additional stipulations for establishing and governing a trust:
- The trust must have at least one beneficiary.
- The trust must contain explicit and specific duties for the trustee.
- If you designate only one beneficiary, they cannot also be a trustee.
- A beneficiary can be a trustee if you have multiple beneficiaries.
- The court may intervene if a beneficiary, trustee, or other person with a vested interest files a court proceeding.
- The trustee should receive adequate compensation, even if not stated within the trust, which the court can raise or lower in specific circumstances.
Benefits of a Family Trust
When establishing a family trust in Arizona, you’re helping your family with several benefits.
Avoids Probate
Probate is often a long and costly process, and in some cases, it can seriously damage an otherwise amicable family relationship. Even with a clear will, many surviving family members find probate difficult, convoluted, and emotionally charged.
The biggest advantage of a family trust is that you avoid the probate process, which largely involves the actual transfer of the asset. Because you’ve already transferred ownership to the trustee, the belongings are no longer in your name, and the process is much more efficient, cost-effective, and pragmatic. You’ll find handling emotions in trust planning difficult enough, but since emotions usually run high after a loved one’s death, your family will appreciate dealing with the emotions sooner rather than later.
Protection
While Arizona doesn’t impose estate taxes after death, your assets are susceptible to federal policies. By placing your assets into a family trust, you can protect them from some or all of the taxes associated with passing them on. The more assets you designate as part of the trust, the more you’ll benefit from these protections.
An irrevocable family trust is also a good method of protecting your assets from creditors, as the trustee technically owns them in your place. If you’re worried about creditors seizing some of your property after your death, consider adding them to a family trust.
Increased Flexibility
A family trust in Arizona increases your flexibility in managing your assets because it can dictate how the trustee manages your assets while you’re alive or medically incapacitated. While a will only takes effect upon your death, a family trust starts when you sign the documents. A family trust avoids putting your loved ones in the difficult position of managing your belongings when they’re feeling vulnerable and grieving your terminal illness or other serious medical condition.
Milestone Benefits
Unlike a will, a family trust allows you to stipulate not only what assets a beneficiary receives but also when they receive them. For example, you could add a clause that prevents your child from receiving any money before they’re 25 or designate a lump sum to gift them when they marry. You can even allow the trust to disburse the assets while you’re alive, providing a wonderful opportunity to help them buy a house or start a family, provided they meet the requirements of the trust’s terms.
Privacy
If you have complex family dynamics or don’t want the public to know the extent of your assets, you’ll love the privacy that comes with establishing a trust. Whereas a will becomes public knowledge when it enters probate, the contents and terms of trust only remain between the parties involved in the document.
Disadvantages of a Living Trust in Arizona
How does a family trust work? It’s a good fit for many people, but it can have some disadvantages, especially depending on the type you establish.
Revocable Disadvantages
In a revocable trust, you don’t lose ownership of your assets, which may seem beneficial, but it comes with a few major downsides. The biggest disadvantage of a revocable trust is that you don’t protect your assets from creditors. You also won’t have a better chance of qualifying for government benefits like Medicaid because these programs rely on determining your net worth and other assets to establish whether you qualify.
You also might pay federal estate taxes, even on a revocable trust. However, many people still think these disadvantages are worth the flexibility of adding and removing assets at will.
Irrevocable Disadvantages
While an irrevocable family trust offers the most benefits for protecting your assets against the government and creditors, the biggest disadvantage is its rigid nature. You must carefully consider every aspect of this trust, as you won’t have recourse to change or revoke it. If you feel capable of relinquishing control once you decide on terms, you’ll appreciate all the benefits of an irrevocable trust.
Could You Use a Family Trust?
While a family trust isn’t necessarily a good fit if you have a net worth under the probate threshold, if you want to protect your sizeable assets for your family, you should ask a lawyer about how it can benefit you. The legal team at Lincoln & Wenk can help you determine what type of trust is best for you. Your partner, children, and grandchildren will appreciate a trust, and you’ll appreciate your ability to outline specific terms under which you disperse your assets.
Lincoln & Wenk Offers Consultations for Estate Planning
How does a family trust work? Lincoln & Wenk can help you understand everything you should know and advocate for the best interest of you and your beneficiaries. From protecting your loved ones with estate planning to helping you navigate the legal process of divorce, our knowledgeable and experienced team of legal professionals works tirelessly on your behalf. Contact us today to request a consultation and learn more about your options.