There are distinct differences between a will and a trust. A trust offers some unique benefits that you simply don’t get with a will. Creating a trust in Arizona is advisable for anyone who wants to be more tax efficient, values their privacy, and would like to avoid probate.
There are many different types of trusts available so it is important that you work with a qualified expert to help you find the best estate planning vehicle for your situation. Trusts can be revocable or irrevocable. A revocable living trust can be changed as needed while an irrevocable trust is incredibly difficult to change once it has been established. With both types of trust you generally give up ownership of the assets.
Once a trust is established you can move your assets from your estate and place them in the trust. This allows your assets to avoid being counted as part of your estate and included in estate taxes. It is important to note that when you put an asset into a trust you no longer own the asset, the trust does. This change in ownership does not usually prevent you from continuing to benefit from the asset and in some instances you can take funds from it as income.
There are many different trusts available to help improve your tax efficiency. A charitable remainder trust is a good example. This type of trust allows you to take an income for a set period of time and then at your death, the designated charity will receive the assets within the trust. A charitable remainder trust allows you to take an income, donate to a favorite charity, and benefit from some tax savings. This type of trust allows you to invest in the trust while receiving a partial tax deduction.
Another potential tax savings vehicle is a qualified personal residence trust (QPRT). This type of trust holds only your personal residence and is set up for a certain number of years. The home is set aside for your use but after the predetermined number of years it is owned by the trust and available for eventual distribution to the heirs.
A possible strategy for tax savings may also be distribution. Trusts pay taxes on earnings and it may be helpful for a trust to distribute to beneficiaries to lessen the overall tax bill.
You should consider your state’s specific tax laws and look at your estate as a whole before choosing any of these options. A CRT and QPRT are irrevocable trusts so it is important that you are certain these are good fits for your overall estate plan prior to implementing. An estate planning professional can help you assess your situation and map out a tax efficient strategy.
If you use a will as your estate planning document, when you die it will go to court through a process known as probate. Because the court proceedings are open to the public the terms of your will are made part of the public record. This means anyone that is curious enough to research the court records can find the terms of your will and your bequests. If you prefer that your final wishes remain private you should strongly consider a trust. A trust in Arizona does not go through probate (unless there are assets you forgot to put in the trust). Trust administration is much simpler than probate. With a trust, your trustee simply administers the estate as directed. There is no court process and no public record. Your wishes and the terms of how and what your beneficiaries receive remains private.
As mentioned above, if you have a will, your estate will be forced to go through probate. Probate is the process of verifying your will and then assessing and distributing your estate as indicated by your will. Probate can be a lengthy and expensive process. Your estate will be responsible for court and legal costs. In addition, it could be a year or more until your beneficiaries actually receive their inheritance. Depending on the size and complexity of your estate, probate can drag on for years.
A trust is administered by a trustee and avoids the probate process altogether. Your heirs do not have to wait nearly as long for their inheritance. Your estate will also not need to pay for legal fees, leaving more of your estate to your heirs.
Allows your trustee to take over in case of emergency
If you become ill or incapacitated, your trustee can manage your trust immediately. If you have a will and do not establish a financial power of attorney, it may take some time before the proper person can be appointed. In the meantime, there could be confusion about who is in charge of your estate and your assets could be negatively impacted. A trust allows the seamless transition of responsibility to your appointed trustee.
Estate planning is a very personal process. You should work with a skilled attorney to first establish your goals and then find the appropriate legal vehicle to meet those needs. Establishing a trust in Arizona may be the best fit for you but it is important to explore all your options with an estate planning expert. Make sure that any document you select is properly written and executed. While no one likes to think of their death, estate planning can execute your wishes and empower your loved ones after you’re gone.