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Revocable Living Trusts are just what they say they are: a Trust that can be revoked. However, there are some additional questions that must be answered for you to be able to fully understand what a Revocable Living Trust actually does, and understand the benefits of creating a Revocable Living Trust.
What is a Trust and How Does It Work?
The first question must be: what is a Trust anyway? To understand it in the way that it functionally works, a Trust is a contractual relationship between the Trustee and the Beneficiaries. The Trustee is the person, or entity, that the Grantor (person who established the Revocable Living Trust), has appointed to manage the assets being held in Trust. The Beneficiaries are just that, the people (or non-profits, animals, etc..) who benefit from the Revocable Living Trust.
There are basic requirements for a Trust to be created in the State of Arizona: (1) There must be a Grantor; (2) The Grantor must manifest the Intent to create a Trust; (3) There must a Trustee; (4) There must be identifiable Beneficiaries; (5) The Trustee must have duties to perform; and (6) the Sole Trustee may not also be the Sole Beneficiary (ARS §14-10402(a)1-5).
In the above requirements, you see that the Grantor can also be a Trustee AND a Beneficiary. The catch is that the Grantor cannot be the only beneficiary if he is the only Trustee. Why? Because the law requires a split of what is called “legal and equitable title”. At the time the Trust is created, the law requires the legal title to vest in the Trustee/s, while the equitable title must vest in one or more Beneficiaries. If the sole Trustee is also the sole beneficiary, no Trust can exist under Arizona law. This is because the necessary classes of ownership needed to create a trust (legal title holder and equitable title holder) are merged in the same person. The necessary “split” in title has not occurred, therefore the Trustee has no duties to anyone but himself and cannot be held accountable, as a fiduciary, by anyone but himself.
What are the Trustee’s Basic Responsibilities?
The Trustee has certain responsibilities, known as fiduciary duties, that are owed to the beneficiaries. These fiduciary duties are, for the most part, statutory in Arizona. The Trustee must manage the assets for the benefit of the Beneficiaries, must refrain from self-dealing, and other conflicts of interest, and things of that sort. The Trustee must also properly allocate Trust income between the Income and Remainder Beneficiaries. To guide the Trustee on how to do this, the Trust documents themselves typically outline how to allocate the assets and income, or the Trust documents allow the Trustee to ensure fairness between the two classes of Beneficiaries by taking some income which was to go to one class and move it to another to ensure that each class is represented fairly in Trust Distributions.
How Do I Know if I Need a Revocable Living Trust?
This is a great question that I love answering. A Revocable Living Trust is a great tool that virtually anyone can utilize for the benefit of their loved ones. The most common reason is to reduce estate administration costs and allow a more streamlined transfer of your assets to your loved ones upon your death. It can also have
A Revocable Living Trust also greatly reduces the likelihood of a Will Contest, which can wreak havoc on a family, and is some of the most costly litigation around, with fees climbing into the tens of thousands (and even hundreds of thousands) of dollars with relative ease. In this way, establishing a Revocable Living Trust helps to ensure the continued continuity of a family.
Revocable Trusts also provide privacy, as there is no public probate administration. This allows you to avoid the publication of your Will, your assets, etc.. upon your death. Revocable Living Trusts also allow the Grantor the ability to revoke or amend the Trust during their lifetime, which is hugely beneficial for continued control over the assets of the Trust by the Grantor.
So, the answer to the question is never that you need a Revocable Living Trust. The answer is that there are several reasons why it would be beneficial to you and your loved ones if you established a Revocable Living Trust. Yes, you can elect to simply have your Last Will and Testament drafted. Your Estate will then likely be administered through Probate and your assets, in all likelihood, would eventually get into the hands of the right people. However, a Revocable Living Trust is an effective Estate Planning tool that has been utilized by countless Arizonans to streamline that process.
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