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A trust is an estate planning instrument that can transfer title from an individual to a trust, for the benefit of the person who executes the trust, as well as anyone else they want to designate as a beneficiary. Also known as a living trust, or revocable trust, it is different from a will, which only regulates property after a person dies. The specifics of what a living trust can do will greatly depend on the terms of the trust. A trust can be flexible, making simple provisions or containing very specific requirements.
Trusts and wills have been used as important legal documents throughout history for estate planning.
The grantor, also called a ‘settlor’ or ‘trustor’, is the individual who creates the living trust and transfers property to the trustee according to the terms of the trust.
A trustee is the individual (or bank), that holds legal title to the trust property and manages the trust property, according to the terms of the trust.
The beneficiary is the person who has a beneficial interest in the trust. In a living trust, the grantor is the lifetime beneficiary. After death, they may designate any number of other beneficiaries of the trust property.
While many grantor’s name a bank, trust company or their attorney as the trustee, some people name a friend or family member as the trustee. Attorneys and other financial professionals have a legal and ethical obligation as a fiduciary, as well as the skills and training to manage the grantor’s property. While a friend or family member may be considered very trustworthy to the grantor, they may not have a lot of experience in handling financial matters or complicated property investment. It may be important to make sure an inexperienced trustee understands the responsibilities associated with managing a trust.
There are a number of benefits to a living trust in Arizona. A trust can be used to avoid probate, save time and money, reduce tax liability, protect real property and personal property, provide for a charity such as a church or a school, and offer long term protection to family and loved ones.
One of the major benefits of a trust is that it can keep property out of probate. Probate is a process that takes place after someone dies. Probate includes evaluating the deceased individual’s will to make sure it is valid. Their property is then identified and valued. All debts, taxes and other liabilities are then paid out before distributing the remaining property according to the terms of the will.
Depending on the situation and the size of the estate, probate can take months, or years if the validity or terms of the will are in dispute. A trust essentially bypasses probate because the property is transferred directly to the trust. Property in a trust does not have to go through probate, which can save time and money. The beneficiaries, most often family members, will not have to wait months or years before they can be provided for. Avoiding probate can also result in significant tax savings.
Another benefit of a trust is that family, friends or other beneficiaries can be provided for according to the wishes of the grantor. Rather than simply giving a child or grandchild a lump sum of cash, a trust can be used to manage the money, paying out only income, or making periodic payments over time so that property will be less likely to be mismanaged. A trust can also allocate property or money for a specific purpose, such as providing for basic needs, or educational use.
Something that is becoming more important to people today than it was in the past, is that many individuals worry about what may happen to their pet; dog, cat or any other animal after they die. For many of us, our pets are members of our family. The law does not provide for an animal to inherit money; however, a trust can provide for a pet’s care after the owner’s death. A trust can name how an animal will be cared for, who will care for the animal, and where the animal will live. Providing for a pet through a trust can give many people much-needed peace of mind.
A trust, unlike a will, has effects both during and after an individual’s death. Even though the trust transfers property to the trustee, the property still remains for the benefit of the grantor throughout their lifetime, with the grantor maintaining control over their property during their lifetime. That means that if your home is part of the trust, you can still live in your home just as you would, for the rest of your life.
Another benefit of a trust is that it can be utilized to provide for the grantor after they have become disabled or incapacitated. Without a living trust or a living will, an individual may lose their ability to make decisions about their health care, mental health care, palliative care, and end-of-life care if they are no longer able to communicate. A living trust can utilize the grantor’s property for care during the time of incapacity.
After a grantor’s death, the trustee is responsible for handling the trust property, according to the terms of the trust. This may involve distributing property to the beneficiaries, or managing the property for the benefit of the beneficiaries. Trusts can be used to maintain and invest the property, distributing the income to the beneficiaries.
There are specific legal requirements for creating a valid living trust. A grantor must be of sound mind at the time they enter into the trust, without undue influence and of their own free will. A grantor can always make changes to a trust or revoke a trust. As long as they are still of sound mind, they can alter the terms of the trust, make changes to beneficiaries, or change the property that is included in the trust.
Before establishing a trust, it may be important to speak with your Arizona estate planning attorney so that you will understand not only all the benefits of a living trust, but also the potential limitations and drawbacks. A trust can be a powerful estate planning tool, and provide lifetime benefits as well as benefits for loved ones after the grantor passes away. Your estate planning attorney will be able to answer all your questions, and help you to determine whether a living trust is your best estate planning option.
At West, Longenbaugh and Zickerman, our estate planning lawyers are here to help individuals and families throughout southern Arizona achieve their long-term financial, legal, and estate planning goals. We will work with you and provide you with everything you need to prepare a trust that will take care of your needs, as well as your family, friends, and loved ones. Our team of attorneys are committed to addressing the individual needs of each of our clients and can assist you with all aspects of estate planning.