Arizona Estate Planning Principles: Revocable Trusts

What Is a Trust?

Life can feel like a game of chess sometimes. This is especially true when it comes to making the right estate planning decisions for you and your family.

In my practice, I explain to my clients that in making estate planning decisions, each person has the right move to make, just like in chess. In order to do that, you need to have a strong legal guide to help you with the tough decisions surrounding your estate planning and asset protection needs.

In many instances, simply establishing a simple trust is the right choice for my clients, but not always. Each person and each family has different goals and desires for their assets. For today, let us simply focus on a standard trust agreement and how establishing one may be the right choice for you.

When most people think of trusts, they only think of the super wealthy. Images are conjured of "trust fund babies" playing around on Instagram while traveling the world. Well, while that does happen, it was made possible by parents and grandparents who decided that asset protection and responsible asset management was best for them and their family.

However, there are a lot of misconceptions about what exactly is a "trust" and what they can accomplish. In determining whether or not a trust is a good option for you and your family, it is vitally important to understand exactly what the term "trust" means and how establishing a trust could benefit you and your loved ones.

A trust has a creator, called a "trustor" or "settlor", a trustee and beneficiaries. All three must be present, although one person can have more than one title, for instance, the settlor can also be a beneficiary or a trustee.

A trust helps to avoid court in the event of your death or incapacity and is administered by the trustee rather than a judge or executor in probate. The trustee acts as the overseer of the property and funds that are put into the trust.

The trustee has what are called "fiduciary duties" to act in the best interest of the beneficiaries in administering the trust. In deciding who you should appoint as a trustee, you want to make sure you trust the person. This is why many settlors use financial advisers and bank trustees to manage trusts, especially larger asset trusts, to ensure proper management because of their expertise in asset management.

A revocable trust is what we would commonly think of as a "trust". A revocable trust is revocable at any time by the settlor prior to their death, as long as the trust document does not prohibit revocation.

A standard revocable trust offers no asset protection, but we would still recommend a trust over a will for an estate plan because of its relative ease of creation, use, and administration by the trustee. The major benefit for a standard revocable trust is that the assets of the trust avoid probate.

Probate of estates, with even moderate assets, can be quite costly. As will be discussed more fully below, probate can be quite the process, and if there is any contest to the Will, or a devise in the Will, contested probate litigation is simply one of the most costly forms of litigation for individuals. It is possible to avoid all of that with a simple trust agreement.

Avoiding Probate All Together With A Trust

Probate, on the other hand, is a court ‘supervised’ process to aid in the administration and transfer of assets from your estate to your heirs and devisees under a Will.

If we took a poll today, most people would say that they would prefer to avoid probate all together. The people who say they wouldn't are probably just gluttons for punishment.

It is possible to forego probate all together if all assets are transferred to a trust, with no remaining assets in the name of the settlor. The settlor can be a beneficiary of the trust and continue to use the assets of the trust, such as a home, etc. and thereby avoid probate.

However, if any assets remain in your name, probate is typically required. This is when setting up a trust pays off. You can set the trust up to survive you and pay out income and distribute assets after your passing.

After the trust terms have been met and the assets have been transferred to the beneficiaries, the trust may essentially disappear or become dormant and the trustee can be released or step down.

Have Questions About Setting Up a Trust in Arizona?

At HLG, we understand that making financial decisions can feel like a game of chess. Our goal is to put you in the best position to make the right decision for you and your family. This is why we stress estate planning and asset protection that is tailored to meet the needs of each client.

If you have questions about establishing a trust in the Maricopa County area, you need to speak with Arizona estate planning attorney, G. Patrick HagEstad with HLG.

G. Patrick HagEstad has been practicing law for over 20 years and is licensed to practice in both Montana and Arizona. G. Patrick HagEstad and his knowledgeable and experienced staff are committed to putting you at ease during the estate planning process.