A Trust is a legal document which allows a person or company to manage the assets and property for the benefit of an individual or group of people (i.e., “Beneficiaries”).  The Trust is usually set up at the same time as a Will and is usually effective during a person’s lifetime.  The person (or family) that the Trust benefits is usually run by the person who created the Trust (i.e., the “Grantor”).  However, in some circumstances Trusts are created in which the Grantor who created the Trust, gives up control to a separate Trustee.

If the Trust is drafted correctly, many times a Last Will and Testament will result in the “pour over” of assets into the Trust upon a person’s death.  Even though this should help avoid Probate, there are still tax documents that need to be filed, and then the “Administration” of the Trust must take place.

Advantages of Having a Trust

• A Trust can avoid the expensive delay of Probate proceedings.
• Trust Administration is usually a private proceeding, and the general public will not know your assets, or who gets what.  That’s not possible with a public Probate Court proceeding.
• A Trust provides uninterrupted control or flow of assets when a person dies, as opposed to the lengthy delay of a Probate proceeding.
• A Trust can help avoid or reduce the tax liability upon the Grantor’s death.
• While you are alive, a Trust will allow you have access and flexibility in managing your property.
• Even after you die, the Trust can maintain the ownership of the property longer than a Will would allow.
• And most importantly, if you have a serious accident, or you become incapacity, it will avoid the need for a Court-Appointed Guardian who would need to get up to speed regarding all of your assets, and who would make the decision on who gets what and when.

Types of Trusts

• Revocable Living Trusts

Trusts usually are considered Revocable or Irrevocable.  A Revocable Living Trust is the most common, because it allows you as a Grantor to put items in the trust and dispose of them as you wish.  Many individuals have these Trusts for decades during the course of their lifetime, and they steadily build up their Estate by placing assets within the Trust.  These can include houses, stocks, retirement accounts, cars, art, and every other type of real property or financial instrument.  Another benefit of a Revocable Trust is that the Grantor can designate certain people who will receive some of the assets upon the Grantor’s death.  This allows the Grantor to remove some people (i.e., “Beneficiaries”) during the course of their lifetime – especially in cases of divorce or recent marriages.

Remember: Per Arizona, law if your real estate holdings are worth over $100,000 (or your personal property is worth over $75,000), then your estate will automatically go into Probate if you do not have a Revocable Trust in place.

• Spouses and A-B Trusts

Although the purpose of a Revocable Living Trust is to protect your assets after a spouse dies, creditors still will have first dibs on those assets (if applicable).  However, the main purpose of this Trust is to provide for your Surviving Spouse, and then protect those assets for the rest of the Beneficiaries in the future.  After the first spouse dies, then what is known as a Decedent’s Trust will be set up in order to shield those assets and provided for the Surviving Spouse.  After the Surviving Spouse passes way, then a Beneficiary’s Trust will have to be set up for each of the Beneficiaries.  Remember, it is important to have a skilled Estate Planning Attorney to create these documents, and review them after an individual dies.  This is because various taxes will come into play, such as Capital Gains Tax, Inheritance Tax, Income Tax, Estate Tax, Generation-Skipping Taxes, and Excise Tax.

A properly drafted Trust will require that after the first spouse passes away, the Trust will be separated into two Sub-Trusts.  This is required to take full advantage of the Federal Estate Tax “Coupon.”  This dictates how much a person can leave to their heirs before triggering Estate Tax consequences.  Currently, each spouse can leave up to $13.61 million dollars to their heirs before triggering Estate Taxes.  This is as of 2024.  Because of the combined value of the spouse’s Estate Tax Coupon, is $27.22 million (as of 2024), it is important for the Estate Planning Attorney to include language in the Trust mandating that Trusts need to be separated into Sub-Trusts upon the first spouse’s death.  This is required in order to let the Trust Administrator or Successor Trustee (selected by the Grantor/makers of the Trust) know that they have this specific duty.

• Irrevocable Trusts

An Irrevocable Family Trust is one in which the Grantor forever releases any claims on certain assets (such as money, houses, cars, etc.), and the asset goes into a Trust for the benefit of another person.  This is often seen with Irrevocable Life Insurance Trusts in which the premium is paid by the Grantor as “gifts” to their children, and this helps reduce the tax liability of the children and Grantor upon the Grantor’s death.  In addition, all of the proceeds from the life insurance policy will be tax-free upon the Grantor’s death.  This money can then be distributed to the children by the directions of the Trust at the hands of whoever the then-designated Trustee is.

• Special Needs Trusts

A Special Needs Trust is a Trust that is established for the benefit of a Vulnerable Adult.  This vulnerability can be either mental or physical, and it usually involves high-dollar life care costs.  If you have a family member or loved one who is a Vulnerable Adult, make an appointment with Cantor Law Group to speak with us on the best way to proceed.