Estate planning is essential, whether you have a great deal to leave or very little. Taking care of your affairs ahead of time brings peace of mind, allows you to distribute your assets as you see fit, and can save your heirs substantially on taxes.
To make the best decision for your estate, you need to know the differences between a will and a trust. Both are practical devices for prudent estate planning, but they serve different purposes.
Wills and trusts are not mutually exclusive by any means. They can be used together to design an estate plan that meets your specific needs.
Wills in Arizona
A will is a written set of instructions listing how you want your estate handled after your death. In your will, you will designate one or more personal representatives, called executors, to manage your assets and distribute them in the way you decide.
It is essential that you write a will, even if you estate is not large. Dying without a will in Arizona means your assets are distributed to family in accordance with general guidelines. Since your specific desires are not recorded, who actually gets your goods may not be the people you intended.
It is easy to change a will at any time before you die. Simple changes are made with an amendment called a codicil.
A will affects all assets that haven’t already been handled using another method of transfer. In Arizona, you can set up alternate methods that automatically pass the asset to the surviving owner. These include:
- Beneficiary designations
- Payable on death accounts
- Transfer on death accounts
- Joint tenancy with right of survivorship
- Community property with right of survivorship
- Titled into the name of a Trustee
- Beneficiaries listed on IRAs, annuities, life insurance, retirement plans, and your car
- Beneficiary deed for real property
After your death, your will is probated. This means it is submitted to the court, your personal representative is officially appointed, and your assets are distributed according to your instructions. Your will also becomes part of public record.
Living Wills in Arizona
A living will is a separate document that lets you make decisions about your end-of-life medical care.
In your living will, you will make it clear what your wishes are when it comes to prolonging medical treatment. A living will is sometimes also referred to as a physician’s directive or health care directive.
If you become incapacitated, this form lets your doctors and your family know what types of medical treatment you want and don’t want implemented when your condition is considered terminal or if you are in a permanent vegetative state. The living will only becomes relevant if you are incapacitated and can’t make your own decisions.
Living Trusts in Arizona
A living trust, also called a revocable trust, is an estate planning device. It lets a trustee take the title to specific assets that you own as the settlor, or original owner and original trustee.
Unlike a will, a living trust takes effect as soon as you have one put together by a lawyer. You can actually start to distribute your estate while you are alive through a trust.
The wording of the trust sets up who will take over as trustee for you when you die or are no longer able to act. During your lifetime, you as the settlor are often the sole beneficiary.
Comparing Wills and Living Trusts
There are a number of differences between trusts and wills. Here is a look at five of them.
- A trust covers property that has been specifically transferred to it. The will covers all property in your name at the time of your death.
- The will must go through probate, which means the process is overseen by the court. The trust is outside the probate process so the court does not oversee it.
- Wills are part of the public record. Trusts are private.
- A will goes into effect when you die. The trust becomes effective as soon as it is written and signed.
- A trust does not replace a will. You still need a will, even if most of your assets are being handled through a trust. The will is what governs the distribution of most everything in your estate. A will allows you to specify who gets particular items, from a piece of art to a favorite chair.
Trusts have specific advantages when it comes to estate planning. For example:
- A trust is not subject to probate, which means it can save your estate substantial fees.
- It can take effect if you are incapacitated. Your trustees, whom you name beforehand, can manage your estate if something happens to you. This preempts the need for a court appointed conservator.
- It reduces taxes. It saves money, especially for a married couple, in certain circumstances.
- It protects your beneficiaries, especially if they are young or not suitable to get control of the inheritance in a lump sum immediately.
Myths about Trusts in Arizona
You should be aware of two common myths about trusts. First, a trust doesn’t automatically reduce your federal inheritance taxes. However, a credit shelter trust for married couples can lessen the amount on estates that are over the federal estate tax exemption.
The other myth is that unhappy family members can’t challenge a trust. The fact is that litigation is possible against both wills and trusts.
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.