Frequently Asked Questions And Answers for:
Living Trusts and the Estate
(See Trusts in general)
WHAT IS THE FUNCTION OF A REVOCABLE LIVING TRUST
IN MY ESTATE PLAN? -- Many clients prefer to establish an estate
management mechanism that governs the handling of their property
during life as well as providing for its management and distribution
upon death. Upon establishing the trust the clients immediately
transfer legal title to all (or most) of their assets to themselves
as trustees to manage it for their sole benefit during life and
to name successor trustee(s) to manage and distribute it at death.
When the client dies all trust property is managed as a "trust
estate", not a probate estate, thus avoiding probate court
administration. The trust also allows continuous property management
for the benefit of any incapacitated trust beneficiaries.
WHEN SHOULD I CONSIDER MAKING A REVOCABLE LIVING
TRUST PART OF MY ESTATE PLAN? -- A client should consider establishing
a living trust under any or most of the following circumstances:
a. Any time the clients' estate is sufficiently large (or complicated)
enough to justify the additional cost of establishing a trust estate
as opposed to a probate estate or where the use of other (non-trust)
probate avoiding estate planning procedures are not safe or practical.
b. Any time married clients' combined estates are
subject to significant state tax liability. This has become less of a
problem for most clients since effective 2015 each decedent may exempt
$5,430,000 from federal state taxes. Also Arizona does not impose an
estate, inheritance or gift tax.
c. Any time the client seeks to simplify the
current estate management by combining the management of the overall
estate property into one governing (trust) mechanism instead of
having assets spread out under different title designations.
d. Any time the client seeks to simplify the
after death (or after incapacity) estate management by allowing
successor trustees to merely succeed to all trust assets for faster,
simpler and more efficient estate administration.
e. Any time the client wants to avoid delays,
costs, and difficulties caused by at death probate court administration,
and other convenient, safe, probate avoiding mechanisms are not
f. Any time the client wishes to ensure confidentiality
in the administration of a trust estate rather than a probate
estate because a client's probated will (unlike a trust) becomes
a matter of public record.
g. Any time a client, due to complexity of assets
or special administrative requirements, would like a professional
trustee to provide, unique, expert estate management services.
h. Any time a client has minor, or adult handicapped
beneficiaries, or those with other special circumstances, who
need to have their trust beneficial portion maintained, protected
and managed by a successor trustee.
WHAT IS THE ALTERNATIVE TO THE TRUST AS PART
OF MY ESTATE PLAN? -- The basic alternatives are as follows:
a. The Will alternative--The client can die with all assets titled
in his or her sole name and according to the court probate process
have that property distributed to the beneficiaries named in the
will. If the estate qualifies as a small estate and the will does
not have to be probated, the beneficiaries named under the will
are still entitled to the estate.
b. The non-Will alternative (dying intestate)--The
client can die with all assets titled in his or her sole name and
according to the court probate process have the property pass to
the client's closest
next to the kin under Arizona intestacy statue.
c. The non-trust (or real estate trust) probate
avoiding strategy--In some cases the client can effectively structure
his or her estate so that some or all of the property is held in
assets in which an automatic beneficiary designation goes into effect
at death. Examples of these assets include, joint tenancies, pay
on death designations, trust bank accounts, transfer on death brokerage
accounts, designated (contractual) beneficiaries of insurance products
and individual retirement accounts, etc. However, for many reasons,
the client's house should not be titled in joint tenancy with right
of survivorship, with anyone other than the client's spouse. Although
a simple real estate trust or beneficiary deed may solve this problem
usually, it is advisable for the client to sign a last will and
testament as part of this plan.
WHAT IS INCLUDED IN THE TRUST VS. REAL ESTATE
TRUST PLAN? AND WHAT ARE THE RELATIVE COSTS? --
a. The Living Trust plan consists of the following documents (including
attorney conferences necessary to discuss and implement the plan
and recording of deeds/assignments): (a) Revocable Living Trust,
(b) deed(s)/assignments to (Arizona) real estate, (c) last will(s)
and testament, (d) personal, financial and medical powers of attorney,
(e) living will(s) declaration, (f) community property agreement
(husband and wife trust only), (g) funding affidavits and trust
explanatory letter; which starts at about $1,200.00;
b. The last will and testament plan consists of
the following documents (including attorney conferences necessary
to discuss and implement the plan: (a) last will(s) and testament,
(b) personal, financial, medical powers of attorney(s), (c) living
will(s) declaration; which starts at about $400.00;
c. The real estate trust plan consists of the following
documents (including attorney conferences necessary to discuss and
implement the plan and recording of deeds\assignments): (a) Revocable
Living (Real Estate) Trust, (b) deed(s) /assignments to (Arizona)
real estate, (c) last will(s) and testament, (d) personal, financial,
medical powers of attorney(s), (e) living will(s) declaration; and
starts at about $500.00.
ANY DOCUMENT WITHIN THE ABOVE PLAN(S) THE CLIENT DOES NOT NEED OR
WANT (E.G. DEED, POWER OF ATTORNEY) CAN BE DELETED AND THE PRICE
HOW MUCH ADMINISTRATION IS INVOLVED AFTER THE
TRUST IS SET UP? -- Once the trust is set up the first thing the
client needs to do is to ensure (subject to certain exceptions discussed
with the attorney) that all assets are titled in the trust. The attorney
will have the client sign deeds and assignments transferring all
Arizona real estate assets into the trust, but the client needs
to take other steps to ensure that title to the other assets are
transferred in the name of the trustee. Thereafter, the client(s)
can usually manage the trust without any further difficulty; they
merely sign documents pertaining to their finances as trustee(s)
rather than individuals. Similarly, the client files income tax
returns the same as before the trust was set up; and all trust income
is taxed in the trust the same way it would be if out of the trust.
Until major changes in estate circumstances occur, namely, those
requiring a trust amendment, the attorney does not need to be consulted,
but is available (often without charge) for routine questions about
trust administration and the overall estate plan.
WHAT HAPPENS WHEN THE TRUST CLIENT DIES? -- This
depends on the type of trust the client(s) has. In the case of a
single settlor client, or on the death of a spouse settlor in an
A/B type trust, or on the death of the surviving (spouse) settlor
client, the client's named successor trustee(s) needs to consult
the attorney to properly administer the trust estate. (See #7 directly
below.) However, upon the death of a spouse settlor, in a non-A/B
type trust, one only has to prepare and record a successor trustee
affidavit to show that the surviving spouse settlor is now the sole
WHAT DOES AT DEATH TRUST ADMINISTRATION REQUIRE?
DEATH OF SINGLE SETTLOR OR A SURVIVING SPOUSE SETTLOR -- Administration
generally requires (a) notification of beneficiaries of trust administration,
(b) compiling and sending a copy of the at death inventory of trust
assets to beneficiaries, (c) payment of all trust final debts and
administration expenses (appraisal costs, expenses to maintain trust
assets until final distribution, including trustee, attorney, accountant,
etc. fees), (d) filing the deceased settlor's final personal income
tax returns, (e) filing the trust's income tax return, (f) selling
assets, including any real estate, if necessary, (g) making accounting
and final distribution of trust assets to beneficiaries.
DEATH OF FIRST (SPOUSE) SETTLOR IN A/B TRUST
- Aside from expenses described above, married spouses with a marital
estate significantly exceeding the current individual estate tax
exemption amount ($5,430,000 for a decedent dying in 2015 and afterwards)
may maximize federal estate tax savings through A/B Trust Planning. This
option is now enhanced under estate tax “portability” which allows the
estate of the first spouse to die to elect to apply any unused exemption
amount, to the surviving spouse’s taxable estate. Also Arizona has no estate,
inheritance or gift tax.