Introduction
When an Arizona resident passes away, their estate will need to be settled through probate. Assuming the decedent left a will and none of the actions are contested, Arizona probate cases generally take about 6-8 months to settle.
If you’re thinking that sounds like it takes way too long to settle an uncontested estate, you’re not alone. Nobody wants to spend months dealing with probate court, especially after the loss of a family member.
Fortunately there are several types of assets that can bypass probate. Assets like trusts, retirement accounts, and life insurance policies are designed to transfer directly to beneficiaries when the account owner passes away, a process that could take less than a month to complete.
It still could take 6-8 months to settle the decedent’s debts, transfer probate assets, and close the estate, but at least the beneficiaries don’t have to wait that long to receive their inheritance from the trust.
How a Trust Work After Someone Dies
When a trust owner passes away, the trustee will carry out their duties according to the trust agreement. Assuming the trust agreement calls for liquidating the assets and distributing the proceeds to beneficiaries, the trustee will likely follow this seven step process:
- Take an inventory of the trust’s assets
- Determine the fair market value of the assets
- Sell the assets and gather the proceeds in a trust bank account
- Pay any expenses, bills, and debts
- Pay any necessary taxes
- Distribute proceeds to beneficiaries according to the trust agreement
- Terminate the trust
The length of time it takes to complete this process can vary significantly from case to case. Trusts with highly liquid assets may transfer the proceeds to beneficiaries within a matter of weeks or months, while complex trusts with illiquid assets could take up to a year or longer to settle.
Transferring Trust Assets to a Beneficiary
In most cases, the trust agreement will call for the trustee to liquidate the assets and distribute the proceeds to the beneficiary. That often involves selling stocks and mutual funds, though it could involve selling illiquid assets like real estate, vehicles, jewelry, collectibles, firearms, etc.
As soon as the assets are liquidated and the trust’s expenses and taxes are paid, the trustee will transfer the money to the beneficiary, often in the form of a check or wire transfer.
If the trust assets accumulated interest, the trustee will also send the beneficiary IRS Form K-1 to separate the principal value from the interest value. The beneficiary will be responsible for paying income taxes on the interest value, but not the principal value.
How Working with an Attorney Can Help
It’s a lot easier to navigate the Arizona legal system with an experienced attorney at your side. A probate attorney can help you with the following actions:
- Probating an estate
- Settling a trust
- Contesting the actions of an executor or trustee
- Contesting the legality of a will or trust
Most importantly, an experienced probate attorney can help you understand what’s going on, what your rights are as a beneficiary, and what you can do to protect your inheritance.
FAQs about Settling an Estate with a Trust in Arizona
Q: How long does it take for an estate to be settled?
In Arizona, informal probate cases generally take 6-8 months to settle. Cases that qualify for the small estate exemption may be able to cut that timeline in half.
When a will, trust, or estate is contested, the probate process may take 1-2 years. That said, most Arizona probate cases are informal and uncontested, so it’s rare to see a probate take more than one year to settle.
Q: How long does a trustee have to settle a trust?
Unless the trust agreement specifically imposes a timeline for settling the trust after the owner’s death, there is no established timeline for the trustee to distribute the assets. The time it takes to settle the trust and distribute assets ultimately depends on the complexity of the situation.
For example, if a trust owns liquid assets (bank accounts, mutual funds, stocks, etc.) these assets can be liquidated and the funds transferred within a matter of weeks. On the other hand, illiquid assets like real estate may take well over a year to sell for fair market value.
If you’re concerned that a trustee is not fulfilling their duty by causing unnecessary delays, discuss your case with an attorney. You may need to file a grievance with the court to prompt action or replace the trustee.
Q: How long can a trust remain open after death?
A trust is bound by the terms set in its legal agreement. If the agreement calls for the trust to be liquidated and transferred to beneficiaries upon the owner’s death, the trustee is expected to settle the trust in a timely manner.
Some trusts aren’t designed to terminate right away, though. When the beneficiary is a minor, the trustee may be instructed to liquidate the trust when the minor becomes an adult. If the beneficiary is a spouse, the trustee may be instructed to provide income until the surviving spouse passes away, then liquidate and transfer remaining assets to the secondary beneficiaries.
There are even cases where a trust is designed to operate indefinitely, providing regular income until the funds are used up — which may never happen when there’s a healthy annual rate of return and small distributions.
Q: Do beneficiaries of a trust pay taxes?
The IRS assumes that the trust owner paid taxes on the principal before transferring the assets to the trust. Therefore, beneficiaries do not have to pay taxes on the principal value when they receive a distribution. However, interest accumulated after the principal value was invested is taxable.
When the trustee makes distributions to a beneficiary, they will indicate how much of the distribution is principal versus interest on IRS Form K-1. The beneficiary will then need to claim the interest value as personal income for that year’s income tax return.
What to Do if You Need Help Settling an Estate in Arizona
Assuming you have an amicable relationship with the estate’s executor and the trust’s trustee, these individuals should be your first source of information when you have a question. If the decedent left their will or trust agreement with a probate attorney, that attorney may be able to answer your questions as well.
However, if you’re concerned that the executor or trustee is acting imprudently, or if you believe the will or trust is invalid, it’s best to hire your own attorney to protect your interests in the estate.
Call Our Arizona Estate Team at (480)467-4325 to discuss your case today.
