Why should I consider planning to avoid probate?
In many instances probate can get costly and time consuming. These factors cause many to implement planning devices for altogether avoiding probate. Before deciding to engage in this type of planning, however, you should determine with an estate planning attorney whether it is truly necessary. If you are relatively young and in good health, you can probably postpone considering probate avoidance because your estate will change later in life. Implementing probate avoidance techniques is also unnecessary if your estate is relatively small such that it will not have to pass through probate. However, older individuals with large estates may find that preparing to avoid probate will pay great dividends to their heirs.
What is a living trust?
A living trust is perhaps the most common device used to avoid probate. Living trusts are named as such because you create them while you are still alive, as opposed to being created upon your death. Legal title for nearly any type of property can be transferred to a trust to be held by a trustee for a beneficiary. You can act as trustee for your own trust until you are deceased, at which time the property held in trust transfers immediately to the trust beneficiaries without having to pass through probate. This provides you with full control over trust property throughout your lifetime as well as how the property will be distributed after you are deceased.
How do I create a living trust?
With the assistance of an estate planning attorney, it is no more difficult to create a trust than it is a will. You and your attorney can create a trust which names the trustee, the beneficiary or beneficiaries, and the property you want included in the trust. You must also name somebody as successor trustee who will take control of the trust after your death. Finally, you must transfer ownership of all property included in the trust to yourself as trustee.
Upon your death, the successor trustee is required to transfer title to all trust property to the beneficiaries according to the terms of the trust. This occurs without requiring trust property to pass through probate. Trusts can be designed to provide immediate access to trust funds or to place conditions and time restraints on how your beneficiaries can receive the funds. An estate planning attorney can help you explore your options such that the terms most favorable to your particular situation are included in the trust document.
How can a living trust benefit me?
A living trust is most beneficial because property held in trust does not have to pass through probate. Probate can tie up your property for months after you are deceased and can be quite costly as well. Property held in trust, on the other hand, will pass directly to your heirs in only a fraction of the time and without any probate costs. A trust also gives you more control than a will in regards to precisely how your assets will be divided and distributed upon your death. If you have a relatively large estate, speaking with an estate planning attorney about creating a living trust is a good idea.
Can creditors reach property held in trust?
A trust does not shield your property from lawful claims made by creditors. Even if you transfer title of property to a trust, creditors can seek judgment against the property as if you held title in your name. This means that your beneficiaries will be responsible to pay off your debts up to the value of the trust property they inherit. This scenario is most likely with real property because real estate is recorded publicly so creditors can easily track down trust beneficiaries of homes and other real property.
One disadvantage that living trusts have is that creditors have more time to bring claims than with property that passes through probate. With probate property, creditors are given notice of your death once probate is opened. After notice is provided, creditors are only given a brief window in which they can file claims. Creditors who fail to file within this window are unable to bring their claims in the future. This timeframe is inapplicable to property held in trust so creditors have more time to initiate collection.
Does a living trust preclude the need for a will?
It is always a good idea to have a will. This is true even if you create a living trust to include all of your assets. Your will should name somebody who will inherit everything not left to a specific beneficiary. This way you can dictate who stands to inherit anything you may have neglected to transfer to your trust. Oftentimes individuals inherit property shortly before they pass away and fail to transfer legal title of the property to their trust. Without a will in place these people have no control over who inherits such property.
Does a living will have any effect on estate taxes?
Living trusts are primarily used to avoid probate and have no impact on federal or state taxes. So the short answer is that living trusts do not reduce estate taxes. Individuals with substantial estates, however, should consult with an estate planning lawyer about other types of trusts designed specifically for reducing estate taxes.
Can owning property jointly with another person help me avoid probate?
One useful method of avoiding probate is by titling property in joint ownership with another person. One feature of owning property jointly is that there is a right of survivorship. This means that when one of the joint owners passes away, the surviving owner takes full title to the property. This occurs without requiring the property to pass through probate. The surviving owner merely has to produce documentation and execute the necessary paperwork to take full title once the other joint owner is deceased.
What types of joint ownership are available in Arizona?
Arizona is a community property state so any property you acquire during marriage is held jointly with your spouse unless you designate it as separate property. All of your community property goes directly to your spouse once you are deceased. In addition to community property, you can own property in joint tenancy with right of survivorship, which will pass to the surviving owner without passing through probate once you are deceased. You can share joint tenancy on nearly any type of property with anybody whether or not you are married to that person. Joint tenancy is most commonly used for bank accounts, automobiles and real property.
Can I assign my assets to beneficiaries such that they will receive them upon my death?
Several estate planning tools are available to help you transfer your assets to beneficiaries without going through probate. Most times this involves nothing more than filling out the necessary paperwork. Depending on the asset in question, the form may have a different title, but the effect is very much the same. Bank and retirement accounts can be transferred immediately to beneficiaries upon your death by converting them to payable on death accounts. The same result is reached with brokerage accounts, stocks and bonds by registering them in transfer on death form. Beneficiary deeds are used to transfer real property to beneficiaries without probate. Beneficiaries under any of these designations do not acquire ownership rights to the property until you are deceased.
Is giving property away before I die a good way to avoid probate?
Generally speaking, probate expenses are higher for estates with a greater value. This means that giving assets away while you are still alive could reduce probate expenses. However, the government imposes a heavy tax on gifts which exceed $13,000 per year to any single person. You should speak with a qualified estate planning attorney about this before engaging in serious gifting. This is particularly true when it comes to long-term care planning, as gifting can render you ineligible for ALTCS for a period of time.
If I leave an inheritance to a loved one with a disability, will it jeopardize this person’s ability to receive government benefits?
Government benefit programs such as ALTCS and SSI are needs-based. This means that recipients of benefits can be disqualified if they directly receive an inheritance that exceeds the allowable amount. Even an inheritance left with good intentions could render the beneficiary ineligible to receive government assistance. Setting up a special needs trust with an estate planning attorney allows you to leave a loved one additional support without jeopardizing government assistance.
Money held in certain types of trusts does not affect an individual’s eligibility for government benefits. Creating a special needs trust is thus the safest method of leaving an inheritance to an individual with a disability. Special needs trusts name a trustee who is given complete control over how to spend trust funds on the beneficiary. ALTCS and SSI do not allow trustees to give trust funds to beneficiaries outright, but the following are permissible ways to spend trust dollars:
- Furnishings
- Personal effects
- Co-pays
- Vacations
- Personal care attendants
- Automobiles
- Medical expenses
