Many people are familiar with wills when it comes to estate planning, however, they may not be as aware of trusts. Just as a will specifies how a person’s assets and property should be distributed after their death, a trust can do the same thing, however, may offer the family more benefits than a will does. The following is a brief overview of trusts. A seasoned wills and trusts lawyer Scottsdale, AZ trusts can explain how trusts work, the different types of trusts, and what the benefit may be for your family.
What is a trust?
A trust is a fiduciary relationship between the person who owns the trust (referred to as the trustor) and another party or parties who will eventually be the beneficiary of the trust under the stipulations that the trustor sets forth. Depending on the way the trust is set up, the trustor will either:
- Retain ownership of the assets and/or property that is placed in the trust until the die, at which point ownership of the contents of the trust is then transferred to the beneficiary directly or to a third-party (referred to as a trustee) who will oversee the trust until such time it is turned over to the beneficiary; or
- The trust will be turned over to a trustee who will oversee the trust for the benefit of the beneficiary, based on the stipulations set forth by the trustor when he or she set up the trust.
What is the difference between a revocable trust and an irrevocable trust?
There are two types of ways a trust can be set up, revocable or irrevocable. With a revocable trust (also called a living trust), all of the assets that will eventually be transferred to the beneficiary remain in the control of the trustor as long as they are alive. The trustor can change the trust or even dissolve it at any time. Typically, the trustor also names themselves trustee of the revocable trust in order to have access and retain ownership of the contents of the trust.
Unlike a revocable trust, an irrevocable trust cannot be dissolved or amended once it is set up. The assets and property that are placed in the trust are also no longer under the control of the trustor. The main benefit of an irrevocable trust over a revocable one is that these types of trusts are typically exempt from estate taxes since legally the property in the trust is no longer part of the trustor’s estate.
What is the main benefit of a trust?
Whether a trust is revocable or irrevocable, one of the main benefits trusts offer over wills is that there is no probate process with a trust. With a will, the estate must go through probate, which can take up to a year or longer. This means that any assets going to heirs cannot be transferred to them until the probate process is complete. The proceeds in the trust are transferred to the beneficiary immediately upon the trustor’s death (unless the trustor has placed stipulations on when and how the beneficiary will have access to the trust).
A will can also be contested; meaning the wishes of the decedent in the will could be overturned by a judge if the person contesting it can prove to the court the will should not be considered valid. A trust cannot be contested and however the trustor sets it up is how it legally remains.
Thank you to our contributing Arizona Estate Planning Attorneys for their knowledge about trusts and estate planning.