The key to effective estate planning…
For most people, the first step in estate planning is to create a will but there may be more comprehensive options for Arizona residents of high net-worth.
A revocable living trust can be more effective than a will in several key areas of your estate plan.
We help you:
- Understand the difference between a will and a trust
- Assess your own circumstances to choose the right trust option
- Assist with the setup of your living trust or preparation of a will
Revocable living trusts vs. wills
A Will communicates how you would like your assets to be distributed upon death and who you want to administer your estate.
A revocable living trust (sometimes called an inter-vivos trust) is similar in that it does all this. However, it also allows you to retain full control of your estate until your death, after which point your assets are distributed according to your wishes in the trust document.
There are some important benefits of setting up a revocable living trust as opposed to a will, namely:
- No probate: Unlike a Will (for assets over $75,000), assets included in a revocable living trust are not subject to probate. This avoids possible delays of months or even years, as well as expensive executor and legal fees. A successor (named in the living trust document) is able to administer your estate to transition your assets.
- Ability to plan for mental disability: If you become unable to effectively look after your estate or become incapacitated due to mental disability your named successor can manage your financial affairs without the expense and delays associated with further legal work. A Will on its own won’t allow this and your loved ones would have to ask the court to appoint a conservator to manage your financial affairs.
- Greater privacy: If privacy is important to you or your beneficiaries, a revocable living trust is more secure than a Will as it remains a private document. A Will, on the other hand, will be a matter of public record because it must be filed with the probate court.
Why a revocable living trust?
A revocable living trust is best for most individuals because the trustmaker or grantor (aka trustor) is able to make amendments at any time before death.
Having flexibility is particularly useful if the trust is made earlier in life and many years lapse before the grantor passes away.
Change of mind or change of relationships with beneficiaries (or other circumstances) could all affect a living trust, therefore, most individuals are best suited to leave it “open” to alteration.
An irrevocable trust is available as an alternative estate planning vehicle. The main differences between a revocable and irrevocable trust are:
- Lack of flexibility in an irrevocable trust – once it is set up, it is more difficult to change. Assets cannot generally be taken back.
- If you are sued, a revocable trust offers no protection from creditors: the assets in the trust are considered to be owned by you. An irrevocable trust on the other hand can protect your assets from creditors.
- An irrevocable trust removes the value of the property from the estate so estate taxes apply if your net worth is larger than the applicable estate tax exemption.
This is one of the reasons why an expertly-drafted revocable living trust can provide protection from creditors for beneficiaries.
Power of attorney
Granting power of attorney allows those closest to you to administer your financial affairs and decide on health matters in the event that you become incapacitated.
Usually, however, Powers of Attorney are granted in preparation for when you become elderly or incapacitated.
There are two main types of power of attorney to consider:
General Power of Attorney
This is where you nominate another person (or a small group of people) to handle your finances.
This can take effect immediately or be triggered by incapacity through illness, injury or mental decline.
The powers granted can be wide-ranging or specific, according to your wishes, but all documents must be drawn up, signed, and witnessed, according to Arizona state law.
Medical Power of Attorney
A medical power of attorney nominates another person (or small group of people) to make medical decisions on your behalf, especially in case of emergency.
They do not take effect until you lose the capacity to make healthcare decisions yourself.
Your medical power of attorney document contains provisions to instruct and guide your agent in the management of your health care.
Advance healthcare directives
Another way to plan for your future healthcare requirements is to set up an advance healthcare directive.
This is sometimes called a living will.
It is similar to a general power of attorney but allows the agent(s) you appoint to:
- Access your medical records
- Make health care decisions on your behalf
- Make end-of-life decisions
- Handle your mortal remains
An advance healthcare directive can start with immediate effect, although it is more common to draw up the documents beforehand.
They will come into effect if you become incapacitated and cannot make decisions for yourself, which would be decided by doctors.
Your personal residence should typically be transferred to a revocable living trust utilizing a transfer deed. This ensures that your heirs will not have to go to court to obtain ownership f your home.
Also, by owning your residence in your trust, your home will be protected from your heirs creditors.
Transfer-on-death deeds or beneficiary deeds – Alternatively, if you are not interested in the protection a living trust can provide for your beneficiaries, you can avoid probate for your home by naming a beneficiary(ies) in a “transfer-on-death deed” or “beneficiary deed”.
These deeds do not take effect immediately after they are signed and recorded. Instead, the property is transferred upon death, bypassing probate.
This is a useful estate planning tool for anyone who wants their personal residence to avoid probate and is confident their heirs are doing well enough that they don’t need the protection from creditors, divorce and substance abuse that a revocable living trust can provide.
Why do you need an experienced estate planner?
Failure to arrange your financial affairs according to Arizona law can have serious consequences for the loved ones you leave behind.
For instance, mistakes with setting up a living trust can lead to:
- Probate: One of the reasons for setting up a living trust is usually to avoid probate court, but it can still result if you are unable to fund the trust properly.
- Failure to adequately protect your family or other beneficiaries from unexpected events like lawsuits or divorces.
- Excessive estate and/or income taxes on your most valuable assets, such as retirement plans, IRAs and 401(k)s.
Hiring a lawyer experienced in setting up living trusts and other aspects of your estate plan helps you avoid these costly and time-consuming problems.
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