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Arlene Rheinfelder, EA, CP AZCLDP

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Melissa Hill, AZCLDP

I love the challenge of finding a way to help each person's unique situation. It is never the same because each person is different with their own needs and wants.

What is a Living Trust?

Think of a Living Trust as a refrigerator. The “Trustor” is the person who creates the Trust and originally stocks the “refrigerator” by transferring ownership of property to the Trust. The Trust owns the property.

The “Trustee” manages the Trust. Think of this as “refrigerator privileges” because depending on the terms of the Trust, the Trustee can put items into the fridge, take them out of the fridge, or give them to people named in the Trust. Often, the Trustor and the Trustee are the same person.

A Trust has one or more “beneficiaries.” In the refrigerator scenario, the beneficiary may have the right to receive some or all of the stuff (“assets”) in the fridge. The Trust document states when the beneficiary can receive the assets. It may be when the Trustor dies, when the beneficiary turns a certain age, or when the beneficiary has specific needs.

Why would a person want a Trust? The most common reason is to avoid probate and estate taxes. Assets held by a Trust do not need to pass through probate. Under the current laws, you will pay no Federal estate tax on the first $5 million of your estate (reduced to $1 million in 2013) and up to 35% tax after that. Currently, Arizona does not have an estate tax.

Since most of us don’t have $1 million in assets, why would we form a Trust? A few other reasons people create a Trust are to provide for a family member who has special needs, to allow a family member, who has debt problems, to become the beneficiary (but not allow creditors to take the assets), to hold assets for minors, and to avoid the generation skipping transfer tax. Although more complex, you can think of the generation skipping transfer tax as a tax on property left to your grandchildren.

A Trust can be quite complex, but that does not mean that it needs to be lengthy. A top New York estate planning attorney wrote a complex Trust that dealt with assets of greater than $5 million dollars, but the document was only 24 pages long. Longer is not necessarily better, and an excessively lengthy or poorly written document can make Trust administration an expensive nightmare.

Does a Trust take the place of a Will? No. It can perform many of the same functions, but a Trust is usually combined with a “pour-over” Will. Going back to the refrigerator example, if you bought groceries on the way home and died before you put them in the fridge, the Will takes the groceries (property) and puts them in the fridge (Trust). This makes sure that anything that may have been forgotten, or purchased after the Trust was formed, is transferred to the Trust.

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Please Note: We are NOT attorneys and do NOT provide legal advice. Your information is confidential, but we do not have attorney-client privilege. If you need legal advice, you will be referred to an attorney.

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