Who Needs a Living Trust in Arizona?

Are you considering opening a trust to protect your assets and help your family fairly divide what you’ll leave behind? You’re probably wondering, “Who needs a living trust?”

As Arizona’s experienced trust attorney, the team at Lincoln & Wenk provides advice about and quality administration of living trusts. Here, they discuss everything you should know about a living trust, including its benefits, common myths, and whether you should have one.

What Is a Living Trust?

A living trust is a legal arrangement you establish to protect and divide your assets in the event you experience incapacitation or fatality. As an estate planning tool, it resembles a will; however, it provides broader cover and better protection of your assets.

The parties involved in a living trust include:

• Trustor: Also called the grantor, the trustor creates the trust and transfers their assets to give to their beneficiaries after death or incapacitation.
• Trustee: Also known as the successor trustee, they provide trust administration and divide your assets according to the terms of your trust. Many people prefer designating an attorney or law firm as their trustee because they bring knowledge and experience to the role.
• Beneficiary: Beneficiaries include every person who receives your assets after your death or incapacitation. A beneficiary can also act as a trustee, but cannot act as the only administrator of the trust.

Benefits of a Living Trust

Why would you establish a living trust rather than a will? It has several advantages that you may give your family an advantage in keeping your assets. Benefits include:

• Probate avoidance: Because it provides more details than a will, the assets placed within a living trust don’t require probate intervention. This allows your beneficiaries to receive your assets without excessive time or expense.
• Asset protection: A living trust helps divide your personal assets in a more nuanced manner, such as when your beneficiaries reach a certain stage of life, like marriage or homeownership. It can also protect your assets from certain forms of taxes.
• Privacy: Whereas a living will becomes public knowledge during probate proceedings, a living trust stays private. If you’re in the public eye or have complex family dynamics, you’ll appreciate the increased privacy.
• Incapacity planning: A traditional will can’t dictate how you manage assets should you become incapacitated; however, you can accomplish this goal with a living trust. This means you won’t be dealing with a court-appointed conservatorship and will know your trustee is managing everything according to your wishes.

Types of Arizona Living Trusts

Who needs a living trust? One important aspect of a living trust is you can establish one of two types, making them effective for a wider variety of people.

Revocable Living

A revocable living trust allows you to make changes to it, including adding or removing assets as you see fit. It also doesn’t require that you relinquish ownership of your assets.

The disadvantage of this type of trust is its lack of protection against creditors and a greater investment of time and money in setting it up. Because you still own your assets, it can also factor into certain considerations, such as whether you qualify for Medicaid.

Irrevocable Living

With an irrevocable living trust, you can’t make changes after you sign the legally binding document. You relinquish control of your assets to a trustee, who then transfers it to your beneficiaries according to your wishes.

While you’ll maintain less control with this form of trust, it also has considerable benefits, such as:

• Increased protection from certain taxes and creditor seizure
• More complete probate avoidance
• Easier qualification for Medicaid

Four Truths About Living Trusts

Many myths surround living truths, and some people don’t understand all the benefits they can provide even for middle-class people. Here are four myths about living trusts in Arizona and why they’re untrue.

1. They’re Only for the Wealthy

When many people hear the word trust, they think of the highest 1% of wealth earners and elite financial assets. However, you don’t need assets worth millions or billions of dollars to gain benefits from a living trust.

In Arizona, probate proceedings trigger for any personal assets totaling over $50,000 or property assets in excess of $75,000. Many working-class people have assets exceeding these minimums, and if that includes you, consider whether you’d benefit from a living trust.

2. They Don’t Require Taxation

Many people mistakenly assume that the assets they place in a trust remain exempt from all forms of taxes. This myth has a measure of truth, but even assets in an irrevocable trust can still require certain tax impositions. Factors that determine the tax burden on your assets include:

• Type of living trust
• Total value and type of your assets
• Local, state, and federal tax laws

However, talking with an experienced attorney can help you minimize how much taxes you’ll pay when you distribute your assets, so you should include a qualified attorney among your trustees.

3. Only Old People Need Them

You won’t find a more detrimental and untrue myth about trusts. Whether you’re considering a will or living trust, don’t wait until you’re elderly to establish it. Don’t tempt fate and leave your family scrambling in the rare event you experience a catastrophic illness or accident.

Provided you have the means, you should establish a living trust while you’re still young. You can’t predict the future, and you’ll have the peace of mind of knowing you’ve taken care of your family no matter what happens. You must also exhibit you have the mental capacity to sign a trust, which may come into question as you age or become sick.

4. You Relinquish Asset Control

This myth offers a half-truth, depending on the type of trust you establish. With a revocable trust, you maintain complete control of your assets up until your death and incapacitation and can adjust assets, criteria, and beneficiaries at will.

Even with an irrevocable trust, you still exercise a moderate level of control, as you decide which assets to place in the trust and the exact nature of their distribution. Work with an experienced attorney to establish a will that carries out your directives exactly how you want.

Deciding Whether You Need a Living Trust

Who needs a living trust? If you meet one or more of the following criteria, you may gain significant benefits from creating a living trust in Arizona.

Asset Type and Size

One major determining factor concerning whether you’d benefit from a living trust is the type and size of your assets. If you meet any of the following criteria, you have assets that your family may appreciate you protecting:

• Assets totaling over $100,000 in Arizona
• Real estate in multiple states
• Significant ownership of or investment in a business
• Too many assets to manage yourself
• Assets that exceed the Federal exemption limit for estate taxes ($13.61 million)

However, the type and size of your assets are only one factor in determining whether you’d benefit from a living trust, so consider the other aspects as well.

Financial Challenges

If you owe creditors a lot of money, placing certain assets into an irrevocable trust can protect them from seizure. This occurs because you don’t maintain ownership of those assets, so creditors can’t take them from you. The common assets people put in trusts for this reason include:

• Business ownership
• Real estate
• Titles for vehicles
• Stocks and bonds
• Tradeable commodities, such as precious metals or jewelry

Remember that a revocable living trust does not protect your assets from creditors.

Number of Dependants

If you don’t have anyone to pass your assets on to, you don’t have much reason for a living trust. However, many people have a partner or children who would benefit from any assets you might leave them.

How do you decide if a living trust could benefit your family situation?

• You have multiple ex-partners.
• Your family will likely fight over your dividing your assets.
• Your children aren’t old enough to properly manage your estate.
• You’re worried about your partner squandering your money.
• You don’t want your money going to your children’s partners.
• You want to keep your family’s proceedings out of the public eye.

If any of these situations apply, a living trust can offer the level of control you need to avoid complications.

High Risk of Incapacitation

Because a living trust can manage your assets if you become incapacitated, it’s an important consideration if you’re at a high risk of physical or mental health issues. For example, if you have a gene that leaves you vulnerable to early onset Alzheimer’s, Parkinson’s, cancer, or diseases like ALS, a living trust can manage your assets where a living will couldn’t.

Let Lincoln & Wenk Manage Your Living Trust in Arizona

Who needs a living trust? If you meet any of the criteria for someone who’d benefit from one, you should start seeking a qualified trustee. Whether you’re establishing a trust to avoid probate or have complex family dynamics that could complicate how you divide assets, Lincoln & Wenk provides quality advice and management of your living trust.

You can schedule an appointment by filling out our online form or calling 623-294-2464.