When you are estate planning, it’s important to understand how the different legal documents work, what your options are, and what’s right for you and your family.
Living trusts and living wills are similar, in that they can both distribute your assets after you die. However, there are some key differences between these two documents that you should be aware of when preparing your estate plan.
When you create a trust, you move assets into it during your lifetime so the assets are held by the trust, not an individual person. You can also name the trust as a beneficiary of your assets. Either way, you still have complete control over your assets even if you have a trust.
There are several different types of trusts in Arizona. The most common type is a revocable living trust, which allows you to make changes to the trust document or assets in the trust during your lifetime.
One benefit to creating a trust is that trusts are extremely flexible. For example, you can lay out the terms for how your children will receive assets–in increments, lump sums, etc. The future is never certain, so flexibility in a trust document is important.
Trusts are also beneficial because they do not go through the probate process – assets are owned by the trust, rather than an individual, so they do not need to be formally distributed after death, and they are not made part of the public record. Similarly, assets in a trust are not subject to the federal estate tax.
One downside to trusts is that they can take some time to prepare and fully fund. They can also get complicated if there are significant assets in the trust. You will also need to name a trustee to administer the trust. The initial trustee may be the person who created the trust. However, successor trustees should be named to ensure a smooth and proper transition of administration.
Like trusts, last wills are used to transfer property after death. For families that have small estates, with few heirs and consolidated assets, last wills can be a good option because there is limited paperwork and no need to transfer property into a trust.
I find, however, that where trusts offer several advantages, last wills typically present significant drawbacks.
Last wills can get very complicated if you are leaving property to more than one or two people. Property distributed by a last will can require probate. Although the probate process is not terribly complicated in Arizona, almost all of my clients want to avoid the court involvement.
However, there is one very important reason why parents of young children should create a last will: in the state of Arizona, this is the only legal document that lets parents decide who will care for minor children, should the parents no longer be able to. While a last will may not be the best choice for transferring assets, this document is extremely important for families.
Comprehensive Estate Planning
A revocable living trust and a last will and testament are not mutually exclusive, and they both serve important functions in your estate plan.
For example, if you have young children, you may create a trust and name a trustee to ensure that they will have financial resources available to them until they turn 18 and can legally own property. You will probably create a last will as well, naming the person you want to act as legal guardian for your children.
In addition to naming guardians for your minor children and distributing your assets, your estate plan should also include power of attorney documents, which give your family the ability to care for you after you are no longer able to, and a medical living will, which gives your family permission to take you off of life support if the time comes.
Although it’s never easy to talk about death, I find that my clients often leave with peace of mind knowing that their affairs are in order.
This article does not contain legal advice, nor does it form an attorney-client relationship. If you have questions about your family’s living trust or last will, or if you want to discuss other documents in your Arizona estate plan, please contact me today to set up an appointment.