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Estate Planning Attorneys, Tucson, Arizona

 

Living Trusts

A living trust, like a Will, indicates how you would like your assets managed and distributed upon your death.  But a living trust, unlike a Will, also directs how your assets should be managed if you become disabled.

 

The terminology is a little tricky at first, but understanding a few of the key definitions will go a long way in clarifying just what is involved.

 

A living trust is an agreement between the maker of the trust, or Trustmaker, and the Trustee, who is agreeing to be in charge of managing the trust.  The trust agreement is for the benefit of certain beneficiaries--which simply refers to the people or entities who get the right to enjoy the trust property either now or at some point in the future. The trust property refers to those assets that the Trustmaker places into the trust, such as bank accounts and real estate.  Titling the assets into the trust is called funding the trust.

 

So, who acts as a Trustmaker, Trustee and beneficiary?  Typically, with a living trust, you, or you and your spouse, initially will wear all three hats when you set up the trust.  In other words, during your life you are the Trustmaker and you are the initial Trustee of the trust.  Also, you will be the trust's life beneficiary--the person who enjoys the use of the trust property.

 

Because you are wearing all the hats, you have complete control over the property in the trust during your life.  You can buy, sell or gift the trust property, and you will file tax returns in the same way you always have.  And, importantly, in general you can amend or revoke the trust at any time.

 

It is not until after your death, or after the death of the second spouse to die, that the trust assets will pass to other named beneficiaries.

 

Avoiding Probate and Conservatorship

One of the most frequently cited reasons for having a living trust is to avoid probate upon death.  Probate is a process done in court that serves to transfer the assets of a deceased person to his or her beneficiaries under the Will, or heirs if there is no Will.  The court determines whether the person's Will is valid, and if so a Personal Representative, or executor, is appointed by the court.

What many people may not realize is that a similar procedure also may occur during life, if a person becomes disabled.  The procedure is called a conservatorship and results when the owner of property no longer has capacity to manage the property.  In this case, the court is called upon to appoint someone to manage the property.

This concept takes on more relevance when you consider that a person is four to six times more likely to become incapacitated than they are to die in the next year, according to "21st Century Wealth:  Essential Financial Planning Principals" (Quantum Press LLC 2000).

The cost of probate varies from state to state.  In Arizona the cost generally depends on the complexity and size of a person's estate.

Assets that are in a living trust do not go through a probate process--which means that if all of your assets are placed into the living trust during your life, there will be no probate upon your death.  Just as important, when you have a fully funded trust, there will be no need for conservatorship if you become disabled.  Court involvement is replaced with a smooth transition to a successor trustee who manages your assets when you're no longer able to do so.

 

What's more, if you own property in two or more states, all of those properties can be funded into the same trust.  If you use only a Will, it is possible that there would be a probate in each state in which you owned real estate.

 

There also may be tax advantages to establishing a living trust.  Currently, the amount of a gross estate exempt from tax is $5,340,000 million per individual.  For a couple, setting up a joint living trust effectively allows both spouses to use this exemption, sheltering a total of $10,680,000 million from tax.

 

 

 

"You will be the trust's life beneficiary--the person who enjoys the use of the trust property ... You have complete control over the property in the trust during your life."

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Disclaimer:  The information on this Web site is not legal advice and is intended
for information purposes, and is not intended to replace or supplement
the advice of your own professional legal or tax advisor.