ARIZONA REVOCABLE LIVING TRUST

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An Arizona revocable living trust is a paper legal entity, a trust, to which you transfer all - or any part of - your assets. During your life, while the assets are no longer in your name, they remain under your complete control since you retain the power to amend the terms of the trust, withdraw assets, or make any other changes, including revoking the trust completely. Further, you can be your own trustee. The important thing to remember is that the assets in the trust are in the trust's name and not in your name.

If the probate process is primarily a means of passing title to your assets from you to your beneficiaries, you can see why assets in a trust avoid probate. Simply, the assets are not in your name as the legal owner, although you are the beneficial owner under the terms of the trust. For income tax purposes, the trust is ignored.

You continue to treat all income, losses, and deductions as your own, with the same character as they would have if the trust did not exist. Thus, you, while living, for all practical purposes remain in the same position as you were before you set up the trust. But on your death, the story is completely different. Your death triggers the immediate conversion of the assets from your beneficial ownership to that of your family or other beneficiaries. The economic life of the family is not disrupted. Nor are the assets tied up until the Will is probated, the lawyers finish transferring all assets, and the estate taxes are paid and audited. In fact, your death has no immediate effect on the handling of the trust assets.

The trustee, or, if you have been your own trustee, the successor trustee continues to handle the assets as before with no outside authority looking over his shoulder, no need to publicize the size of the estate or the terms of the trust, and no immediate need for legal action unless, of course, they trustee may want such help or advice. The living trust will already have built into its trust agreement specifications as to how the assets are to be handled on your death. It will explain who is to get what and when and other terms generally identical to those which would have been in your Will. But, unlike assets which are being disposed of by a Will, the trust provisions can be carried out unpublicized, unchecked, and unknown by anyone other than the beneficiaries.

Living Trust Not To Be Confused With Other Trusts

A living trust is not to be confused with other types of trusts which are intended to accomplish specific tax or economic purposes other than merely bridging the transition from the individual to his beneficiaries. For instance, a temporary 10-year trust, commonly known as a Clifford Trust, is designed to shift income to a lower bracket beneficiary with the grantor of the trust property getting the trust property back after a 10-year period or after the life of an individual. To the extent that the temporary trust provides for a direct payment to an heir after the grantor's death, it is a variation of the living trust; but the differences outweigh the similarities. Property can also be transferred through irrevocable trusts, but they have an importance difference. The grantor gives up his rights to the property but uses the trust to prevent the beneficiaries from obtaining full use of the property until a certain time or a specific event. Gifts to minors are often made by means of irrevocable trusts. Bank accounts are frequently opened up in trust for a child or some other individual. These accounts have a general effect of by-passing probate and also permit the depositor to "revoke" the arrangement before death. However, they are obviously different from living trusts.

How the Living Trust Can Accomplish Your Purposes

You do not have to be wealthy to take advantage of a living trust. A trust may eliminate or significantly reduce estate taxes.  To be chauvinistic and sexist, let us assume that John Smith, aged 63, is a man of modest wealth who has no fear of estate taxes. His only thought is his wife. He does not want her to have to go through the usual probate and other legal complications that ordinarily ensue. He wants to eliminate the burden of time, money, and especially the worry and uncomfortable feeling she would face if she had to look to outside persons to get assets which she had always thought of as hers. Smith therefore places all of his assets, with the exception of a joint checking account with his wife, in a living trust and names his wife and himself as trustees. The trust agreement can provide that all the assets are to go to her on his death. At his death, his widow does not have to rush to have the Will probated. She does not have to do anything - at least not until she feels ready and able. On Smith's death, the economic life of the family is not interrupted or disturbed, except for the relatively minor problems of collecting life insurance, social security benefits and the like. Obviously, Mr. Smith is a simplified example. He established a living trust to make the transfer of his assets to his family much more simple than the traditional way. Others may use a living trust as a way of discouraging claims against their estates by unscrupulous or disgruntled people. Others may use a living trust as a more efficient and economical way of handling their estates, or to assure that their beneficiaries will have immediate access to funds. Probate is not only time consuming and costly, it can also impose a frustrating burden on a family when emotional resources are already strained.

Advantages of Living Trusts

1. Settlor can be his own trustee.
2. Trust does not become public court record.
3. Newspaper publicity about dispositive provisions, dollar amounts and beneficiaries remembered, omitted or slighted is avoided.
4. Trust accounting proceedings need not be brought into court.
5. Publicity about litigation arising in court accounting proceedings is avoided.
6. Court procedures make it harder for disgruntled heirs to attack trust than Will, and easier for trustee to defend trust than Will.
7. No interruption occurs in management of securities, family businesses or other real property by reason of settlor's death or incompetency.
8. No interruption occurs in payment of settlor's medical and household bills, taxes, filing of necessary legal forms or caring for his family if he becomes incompetent.
9. No delay occurs in paying debts, bills, expenses and bequests or in caring for settlor's family after he dies.
10. With respect to trust property, executor's fees are eliminated, attorneys' and appraisers' fees are reduced, court filing fees are saved and guardians ad litem are eliminated.
11. Expensive ancillary estate administrations in several jurisdictions can be avoided.
12. Situs of principal estate administration can be placed in jurisdiction elsewhere than settlor's domicile at time of his death.
13. Estate can be perpetuated to provide for children and grandchildren.
14. Settlor can observe trustee in actual operation and can appraise performance.
15. Settlor may obtain professional investment management advice during his lifetime, plus fiduciary responsibility, at trustee commission rates which are often comparable to investment advisory fee.
16. Settlor may be relieved of day-to-day details of property management, such as clipping coupons, going to safe deposit box, exercising stock rights, filing tax forms, and keeping detailed records.

Not All Assets Need to Be Included In The Trust

Few persons will want to or can place all of their assets in a living trust. For example, a personal checking account should probably remain outside the trust so that whenever you write a check, say for groceries, the cashier and all those behind you in the check-out line (who are probably already upset that you are wasting their time by writing a check) do not get any mis-impressions about you or your wealth because you have a living trust.

In Arizona, if the value of your property subject to probate is not more than $50,000.00, and you have no real estate subject to probate, no probate is required. Therefore, if all real estate were in a living trust and all other property in excess of $50,000.00 were in the trust, no probate would be required. Even if you do not necessarily want to avoid probate of your property in Arizona, if you own real estate in another state, you might want to put that property in a living trust so that there will only be one probate upon your death.

Real estate must be probated in each state where it is located, so placing real estate in other states in a living trust in Arizona eliminates the need for those probates (again, the reason is because you were not the legal owner; the trust is the legal owner). Further, by so doing, you may avoid a legal hassle over the question of your legal residence. The transfer of assets to a living trust has no time limit. A last-minute transfer is just as effective as one made years before death. The assets transferred to the trust would avoid probate.

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Editor's note: some of the foregoing material is courtesy of John B. Alward