Wills
A Last Will and Testament designates the person(s) you want to receive your property at death, and the person you wish to manage the probate process for your estate (Personal Representative). All assets titled in an individual's name alone must pass through the probate process. In Arizona, the probate process is no longer overly time consuming or costly, and there are reasons to probate a will if there may be creditors involved.
For relatively small estates an affidavit may be used to collect assets
and avoid the full probate process.
Living Trusts
A Living Trust is simply a trust you establish while you are living, and is a way for you to hold and manage your assets while you are alive and competent. It also provides for someone to step in and take over the management of your assets upon your incapacity or death. These trusts can be very valuable documents under the right circumstances, but do not purchase one out of panic based on ads warning of dire consequences if you don't have one.
The trust either as a separate document or in a Will can save estate
taxes. A trust can avoid probate costs but in Arizona such costs are likely to be only of the same order of magnitude as the cost of setting up the trust. It can set up the equivalent of a conservator for your incapacity, but so can a durable financial power of attorney. The delay in probate is not much different from that with a trust and in some cases probate may have an advantage where creditors are involved.
The trust is paid for now and the costs of probate are paid after you die.
Avoidance of probate is the reason most often given for having such a trust. However, unless you take the necessary steps to turn over all of your assets to the trust, your heirs may still have to go through probate. Therefore, a properly drafted simple Will is important to ensure that all assets remaining after debts are paid and gifts given, are turned over to the control of the trustee of the Living Trust.
As with a Durable Power of Attorney, there normally is no formal oversight by a court or other independent party. That means you must be very cautious when choosing the person to manage your
Trust when you are no longer able to. You can draft your document to require such oversight if you think it appropriate.
When you establish your trust, you will name one or more successor trustees to take over when you no longer are able or desire to manage the trust. Because one of the circumstances in which a successor would take over is your incapacity, the Living Trust should clearly define incapacity. It is generally a good idea that your trust require two physicians to certify in writing that you are not competent to manage your financial affairs. By having a successor trustee to take over financial management of your assets, you generally eliminate the time and cost of going to the court to have a conservator appointed for your estate.
Living Trusts are excellent vehicles for property management, the distribution of assets at death, and the continuing management of assets for your heirs after your death. However, the use of a Living Trust makes it more difficult to qualify for Medicaid. Use caution if you are facing a known medical situation which may require nursing home placement. If you have questions regarding Medicaid or asset protection planning, it is very important that you consult an attorney familiar with the
Medicaid process and asset protection planning prior to setting up a Living Trust.
Special Needs Trusts
If a member of your family is dependent on you and will never be able to take care of themselves, a major concern is how will they survive when you are no longer here to care for them. One way to do this is to set up a special needs trust which is funded at your death with existing assets or the proceeds from insurance policies. The trust would then use those funds to care for the individual but would avoid making them ineligible for any governmental benefits to which they might otherwise be entitled.
Life Insurance Trusts
Having a large life insurance policy can be a very good way to get dollars to your beneficiaries to increase their wealth or to get cash to them to pay any estate taxes that might become due on your death. If, however, the policy is owned by you at the time of your death, the IRS will include the value of that policy in your estate for tax purposes even though the cash actually goes to a beneficiary. That circumstance will usually increase the amount of tax due the government.
To avoid this problem, an irrevocable life insurance trust can be established. The trust would own the policy, not you. If making annual gifts is part of your estate planning, those gifts could be used to pay the premiums of the policy. When you die the trust gets the cash to the beneficiaries without creating any tax liability, giving them the full amount to pay taxes due on you estate or for their own use. Using this type of trust requires you to give up all subsequent control but can be very advantageous.
