A living trust is an estate planning tool that can be used to leave money and other property to a person’s heirs or other beneficiaries without a will. The person who creates the trust (known as the “settlor”) funds it with assets that he or she can manage until death, at which point they pass to a successor trustee for distribution.

A key benefit of a living trust is that it avoids probate — the court process for proving a will and carrying out its provisions. Probate can be lengthy, expensive and at times contentious. By contrast, trust administration is a private affair, requiring no court oversight. That said, establishing a trust also entails some costs, limitations and risks.

Arizona recognizes two basic types of living trusts, each having particular advantages and disadvantages. With an irrevocable living trust, the transfer of assets to the trust is permanent. That is, the settlor cannot take back any of those assets. This type of trust is useful as a tax shelter, since income from the assets is not taxable to the settlor.

A revocable trust allows the settlor greater flexibility. Acting as the trustee, he or she can continue transferring assets to and from the trust and change the intended beneficiaries. However, the settlor is responsible for paying taxes on income from the trust assets. There are likely other costs, including legal fees, associated with managing the trust and transferring property.

Although the property in a living trust does not have to go through probate when the settlor dies, that does not mean that a will is unnecessary. It is possible and even likely that the settlor will fail to include all of his or her property in the trust. A pour-over will is useful for capturing any assets not accounted for and placing them in the trust. In addition, a standalone will can be used to make special distributions of assets outside the trust. In either case, that will is subject to probate.

Living trusts can be complicated to create and to administer. It is best to consult a highly qualified estate planning and trust attorney to increase the likelihood that your trust accomplishes its intended objectives.

Located in Mesa, Arizona the Law of Offices of Joseph M. Udall, PLC provides comprehensive estate planning and trust administration services for in-state and out-of-state clients. Our attorneys offer flexible hours and virtual consultations. Please feel free to contact us online if you have an estate planning or trust administration matter or call [ln::phone] for an initial phone consultation.