Living Trust Arizona

Living Trusts

Brief history -

Living trusts were first used in 16th century England. Kings wanting to limit land ownership oversaw distribution of property when a landowner died (a form of probate).

To avoid disclosure of their land holdings, people set up trusts with the church to bypass the king. Landowners deeded property to their church, in exchange for the promise that the church would grant the land back to their heirs when the landowner died.

Today -

The perception that trusts are only for the wealthy has been changing over the past several decades. Nowadays, families are realizing trusts can be used for a variety of purposes, few of which depend on having large sums of money.

As mentioned on this site's main page, trusts are essentially boxes for holding assets and controlling how they are used and eventually distributed. A trust is created by a trustor, also referred to as a grantor or settlor. The trustor is the initial beneficiary of the trust.

The trust is managed by trustees who manage the trust's assets in the best interests of the beneficiaries. Most trustors name themselves as the initial trustee so he/she retains control of the assets. Married and common-law couples can name themselves co-trustors and co-trustees.

If the initial trustee(s) is incapacitated, successor trustees step in to manage assets in the trustor's best interests until the initial trustee is ready again to manage the assets. When the last trustor passes, the trust's distribution instructions are followed by the successor trustees, who act in a manner similar to an executor. The successor trustee may be instructed to manage assets in the trust for many years after the trustor's passing until beneficiaries are ready to receive their distributions.

In order for a trust to function property, desired assets must be transferred into the trust (funded) prior to the trustor's passing. This step is crucial and is often missed due to procrastination and/or not understanding that signing trust documents does not alone transfer all assets into the trust.

Common trust questions

• Revocable or irrevocable?
  If you want the ability to make changes to your trust, you will want your trust to be revocable. Most families create revocable living trusts. Estates over the estate tax limit can use Irrevocable Trusts to reduce the tax impact on their beneficiaries. Blended families sometimes use irrevocable trusts to keep assets separate.

• Can Trusts be changed after the Trustors pass?
  Trusts become more or less irrevocable after the last Trustor passes. Successor Trustees can manage the assets in the Trust but they are unable to change the language of the trust or veer from the trust's instructions.

• What happens when the Trustor(s) moves?
  When you move, you will find states offer reciprocity and you will not need to recreate your Living Trust. Some states have a registration process, so contact an estate planner in your state to inquire about the process.

• Can unmarried couples create a living trust?
  Unmarried and same-sex couples can create what are typically called Common Law Trusts. Family members, such as brothers or sisters, are unable to create living trusts but other estate planning tools such as Family Limited Partnerships can be used for estate tax purposes.

Common types of trusts

Testamentary Trust - This trust is similar to a living trust except it is created by a will after the will's creator has passed. Because the deceased's assets are not placed into the trust until after the creator has passed, those assets do not avoid probate. Otherwise, it functions similar to a living trust after the trustor has passed.

Revocable A Trust - A living trust that can be pictured as a single box holding the assets of usually one or two people. If there are multiple Trustors, an A Trust doesn't maximize estate tax exemptions.

Bypass/A-Disclaimer Trust - A trust that starts as one trust (an A Trust) but within 9 months of the first spouse passing can be split into two trusts (an A/B or Survivor/Disclaimer) so each spouse can claim a federal estate tax exemption.

A/B Trust - Married couples use ths type of living trust in which two trusts (Trust A and Trust B) are created when the first spouse passes. Dividing the estate allows each spouse to avoid federal estate taxes. Otherwise, the surviving spouse takes ownership of all assets and has only his/her exemption when he/she passes.

Special Needs Trust - Beneficiaries receiving disability income may have their income disrupted by receiving an inheritance. This trust holds that distribution which allows disability income to continue uninterrupted.

Less common types of trusts

Large estates facing estate tax issues (in 2011 and 2012 over $5,000,000) might utilize Irrevocable Life Insurance Trusts (ILITs), Dynasty Trusts / Generation-Skipping Trusts, Charitable Remainder Annuity Trusts (CRATs), Charitable Remainder Unity Trusts (CRUTs), Crummey Trusts, Totten Trusts or one of many others.

Learn more about the roles of Trustors and Trustees or how to transfer assets to a living trust.