Why are living trusts so popular? What happened to regular old wills?

Wills as well as living trusts contain a person’s wishes for how his assets should be disposed of following his death. Either one can be simple or highly complex. There are three big differences between a will and a trust:

  1. A will must be probated if the assets passing under the will are worth more than your state’s probate exemption; trusts are not subject to probate.
  2. A will becomes public record at death because it is placed in the probate court; trusts are private.
  3. A will can only address one’s wishes after death. A trust can deal with your mental incapacity, in terms of how your assets are handled, who’s in charge, and what rules (i.e., your personal wishes) should apply?

Who needs to have an estate plan? Is this something for the wealthy or can an average person qualify?

Everyone should have basic estate planning documents in place at the very least. A person’s specific situation, assets, family dynamics, etc. determines how complex an estate plan needs to be. The majority of people do not need an overly complex estate plan.

My best friend wants me to be executor of his estate. Should I do this?

Being an executor of an estate can be a time consuming task. It also comes with possible personal liability.  You should discuss your role of executor with your friend to determine if this is something you want to do.  You should not accept the appointment unless you understand the implications and are willing to accept them.

Who can serve as trustee of a trust? How do I choose?

Competent persons over the age of 18 can serve as trustee. Two or more persons can be named as co-trustees.  There are also many corporate trustee options.  You should select someone you trust, who understands your wishes and objectives, and who has the time and ability to carry them out.

Should I give a copy of the trust to my children or other heirs?

You may feel free to give a copy of the trust to any family member you choose. However, you may change your mind about certain trust provisions; by keeping the trust private, you can often prevent heirs from being disappointed or questioning changes.

Can I sell an asset which is in the trust?

Yes. As long as the creator of the trust is living and competent the creator has complete control over the trust.  This means having authority to sell assets at any time, to take assets out of the trust, to add assets to the trust, and to spend from the trust without limitation.

Is a trustee entitled to compensation?

Your trust document provides for “reasonable compensation for services rendered.” The trustee’s authority to receive compensation is contained in the trustee powers clauses.

If my trust disposes of my estate, why do I need a will?

If all assets are placed in the trust before death, there is no need for a will other than to name a guardian for a minor or incompetent heir. The only reason for a will is to provide a “backup” to the trust, which will transfer assets at death if they were not transferred during lifetime.

After both parents are deceased and the children or other heirs inherit the trust, can they add their own assets to the trust in order to obtain the benefits and protections of the trust?

Unfortunately, no. The benefits and protections of the trust are privileges given by the original estate owner(s).  The law does not allow us to give ourselves the same protection over our own assets.  For this reason, it is imperative that the heirs not add assets to the trust; however, the heirs can increase the value of their inheritances by accumulating income or by investing in appreciating assets, such as a residence, a business, stocks and bonds, etc.  As long as assets acquired with trust funds carry the trust name, those assets will retain the long-term protection and benefits of the trust.

How can we avoid death taxes, assuming our estate is over the tax-free threshold?

In 2018, the tax-free threshold for Arizona residents is $11,180,000. If assets exceed the tax exempt amount, there are at least two ways to reduce or eliminate death taxes.  First, lifetime gifts can be made to heirs tax-free up to $30,000 per year ($15,000 from each parent).  Grandchildren and/or spouses may be included in the gift plan, if desirable.  (Note:  if you wish to retain long-term control over gifted property, a separate gift trust may be used).  Secondly, life insurance may be used to pay death taxes so the estate assets can remain in trust.

Who can serve as executor of an estate?

Any competent person over the age of 18 can serve as executor. Corporate trustees may also be named.  Two or more persons can be named as co-executors.  You should select someone you trust, who understands your wishes and objectives and who has the time and ability to carry them out.

Why is probate so undesirable? Why do so many people want to avoid it?

Probate means the use of the court system to “settle” an estate; probate usually involves fees (court fees, legal fees, etc.) and time delays. Most states allow only a small amount of assets to pass without probate.  Some states require a probate of every asset, unless it is in a trust or has a beneficiary.  Because of the time and expense involved in probate, many people wish to avoid it, if possible.

Does a living trust protect your assets if you get sued? If not, what can I do to protect myself?

A living trust does not protect assets from creditors (or a divorce) while the estate owner is living. However, some creditor protection is available for a surviving spouse or other  heir.  If a person is worried about possible lawsuits or liability during his lifetime, he should consult with an attorney about his options for protecting assets.

Can you have more than one person in charge of the estate or trust?

Yes, you can name two or people to administer a trust or estate. There are both advantages and disadvantages to co-trustees and co-executors.  On the upside, “two heads can be better than one” and hurt feelings of excluding someone can be avoided.  On the downside, multiple signatures may be required; co-trustees or co-executors might not get along or agree; working together may in fact cause hard feelings.  If the co-trustees or co-executors live in different states, this could slow down the administration process.

Do I need a power of attorney? Why?

A power of attorney designates a person to serve as your “agent” to handle your affairs (financial or health care) if you are unable to so. Everyone, regardless of the value of his assets, should have these documents in place, in case of emergency, travel or incompetency.

Is a will or trust prepared in Arizona valid in other states?

Most wills and trusts are moveable, meaning they move with you and are governed by the laws of the state where you reside.

If I already have a will or trust done in another state, is it still good in Arizona?

Most wills and trusts are moveable, meaning they move with you and are governed by the laws of the state where you reside. It is a good idea to have your documents reviewed to make sure they meet the proper standards of Arizona law.

How easy is it to update or change a will or trust?

To make changes to a will, a codicil is prepared to incorporate new wishes and updates. Some trusts require an amendment or even an entire restatement.  Monarch incorporates the use of schedules which contain the majority of information that may change over time, i.e., who are your successor trustees, who are your beneficiaries, what age beneficiaries get their inheritance, etc., so that updates can be done with ease and minimal cost to the client.

What is the difference between a healthcare power of attorney and living will? Do I need both?

A health care power of attorney is used to nominate another person to make health care decisions for you if you are unable to do so yourself. A living will does not put another person in charge of your health care – it states your wishes about not being on life-support in a hopeless situation. Many people have both. A health care power of attorney is always a good idea (everyone should have one); a living will is a matter of personal preference.

What if somebody I have named as trustee or executor dies or isn’t able to serve?

The person named as alternate will then serve. If no alternate is named, a court order may be necessary to appoint an alternate. In order to avoid this expense, and alternate (or even two) should always be named in the will or trust.

Are there any special requirements for a legal guardian for my children? Can I name an older child as guardian of a younger child?

An adult, i.e., someone 18 or older, can be named as a guardian for a minor child (one who is under 18). The guardian can be a relative or someone not related. All guardian nominations are subject to court approval because the law is designed to protect the well-being of the child. Even though you can name any adult as guardian, the court may not permit the person to serve if the court determines that it would not be best for the child. You should consider naming in alternate guardian, just in case your first choice isn’t available or doesn’t qualify.

If I have a trust, should I name my trust or my heirs themselves as beneficiary of my IRA?

There is no set answer. The factors to consider are (1) the amount involved, (2) the age and maturity of each heir and, (3) what are your wishes if a particular heir doesn’t survive you? The major differences between naming an heir individually and naming your trust are these: when a person is named as beneficiary, he will have the immediate in total access to the funds and, if he is involved in a lawsuit, he can lose the entire amount. When a trust is named as beneficiary, your wishes about withdraws (perhaps spread out over time) will apply and the account will remain free of creditors (in Arizona). There may be different income tax consequences between the two choices (individual or trust) so your attorney or financial advisor should help you decide.

What can I do about a child who is a spendthrift? Is it better to cut him out of the estate or keep him in? How do I decide?

Arizona and many other states have very strong spendthrift laws which protect the trust beneficiary. In other words, you can name a person as beneficiary without giving that person any control over the money. For example, you can stipulate that the trustee will have complete say-so about when funds are distributed and for what purposes. You can also instruct the trustee to pay bills for the beneficiary rather then put funds in the beneficiary’s hands. Whether or not to disinherit a person is a separate decision.

If I don’t like my son-in-law how can I keep him from getting any of my daughter’s inheritance?

If you leave your daughter’s inheritance outright, there are no protections (from her husband or from anyone else). If you leave your daughter’s inheritance to her in trust, it can be protected for her lifetime, even though she has control.

What is the purpose of making a trust irrevocable?

Most living trusts, like wills, are revocable. A trust should never be made irrevocable unless there is a good reason to do so.  Some examples are:  (1) to remove assets from a person’s estate (to avoid taxation at death) without actually handing them over to the beneficiary; and (2) to protect an elderly person who has some form of dementia or is otherwise subject to outside influence, from changing the estate plan.

If I have life insurance, should it go to my trust or directly to my wife or other beneficiaries?

It is almost always preferable to have life insurance paid to your trust (by beneficiary designation) because the trust can provide many benefits such as protection from creditors.

Can I put my second house in Florida in my Arizona trust? Will that avoid probate in Florida too?

Any assets (home, real estate lot, bank account, securities, etc.) can ordinarily be put in a trust, regardless of where the assets are located. If your Florida house is your only asset in Florida, putting it in your trust will avoid Florida probate. If you have any other assets in Florida, they should be put in the trust, too.

My mother has just been diagnosed with Alzheimer’s. She doesn’t have anything (trust, will, power of attorney, etc.). What can I do?

In Arizona, a person is considered “competent” (and therefore able to sign legal papers) until there is clear evidence that he is incompetent. A person with Alzheimer’s disease is not necessarily incompetent to sign a legal document. An attorney will be able to assess whether your mother has the requisite level of competency necessary to sign the trust, will, power of attorney, etc. Whenever a person has dementia of any sort, the family should take that person to see an attorney to determine what legal documents might be appropriate. Waiting too long can result in serious legal problems.