What Happens to Your Family After You’re Gone? How a Trust Can HelpArizona Living Trusts, Probate Avoidance and Inheritance Planning
What Happens to Your Family After You’re Gone? How a Trust Can Help
Arizona Living Trusts, Probate Avoidance and Inheritance Planning
Written by Ilene L. McCauley, Esq.
Published | Updated
How Can a Living Trust Protect Your Family and Help Avoid Probate in Arizona?
A properly prepared and funded Arizona living trust can allow assets held in the trust to be administered by a successor Trustee according to your instructions. This may reduce probate court involvement, preserve greater privacy, provide direction for inheritances and make estate administration easier for your family.
The Last Thing You Want to Leave Is a Mess
When you die, your family is already dealing with a loss.
The last thing most people want to leave their loved ones is a legal mess.
A properly prepared and funded trust can help make the process easier.
Assets held in the trust generally remain in the trust after your death. Your successor Trustee can administer those assets and follow the instructions you left behind.
That can mean less court involvement, greater privacy and an easier transition for your family.
A Trust Can Help Avoid Probate
Probate is a court process used to administer certain property after someone dies.
Not every Arizona estate requires probate. Some property passes outside probate through beneficiary designations, joint ownership or other methods.
A properly funded living trust is another important way to avoid probate for assets held in the trust.
Instead of asking a court to oversee the transfer of those assets, your successor Trustee follows the instructions in your trust.
But remember:
Your beneficiaries don't inherit what you own. They inherit what is left.
Debts and expenses have to be paid. Tax returns may need to be filed, and taxes may be due.
Good estate planning helps everyone understand that from the beginning—and that can help prevent family conflict.
Protecting Your Children—and Their Inheritance
Suppose you want your house to go to your child someday.
You might think the easiest solution is simply to put your child's name on the property while you are alive.
That can create problems you never intended.
Depending on the circumstances, your child's creditors, lawsuits, divorce or other financial problems could affect your child's ownership interest.
A trust gives you another option.
While you are alive, your child does not own your property simply because the child is named as a future beneficiary of your trust.
After your death, a properly drafted trust may also provide protection for a beneficiary's inheritance, depending on how it is structured and applicable law.
One important point: a standard revocable living trust generally does not protect your own assets from your own creditors.
The trust has to be designed for the protection you actually need.
Taxes Can Make a Big Difference
How and when you transfer property can have important tax consequences.
Suppose you own a house that has increased substantially in value.
Giving part of that house to your child while you are alive can have a very different tax result from leaving the house to your child after your death.
Under current federal tax law, inherited property generally receives a new tax basis based on its fair market value at the owner's death, subject to exceptions.
This is often called a step-up in basis.
If inherited property is sold soon after death for approximately its date-of-death value, there may be little or no taxable capital gain. The exact result depends on the circumstances.
For more information about the federal tax rules that apply after a death, including the basis of inherited property, see IRS Publication 559, Survivors, Executors, and Administrators.
Estate planning and tax planning should work together.
Your Trust Has to Work
There is one more thing many people overlook.
Signing a trust does not necessarily mean your planning is finished.
Appropriate assets need to be properly titled or otherwise coordinated with the trust and the rest of your estate plan.
This is commonly called funding the trust.
A beautifully written trust sitting in a drawer may not accomplish what you expected if your assets were never properly coordinated with it.
Make Things Easier for the People You Love
You spent a lifetime earning, saving, investing and caring for your family.
Your estate plan should make things easier for them—not harder.
A properly prepared and funded trust can help you:
- Avoid probate for assets properly held in the trust.
- Maintain greater privacy.
- Decide who will manage your assets.
- Control how and when beneficiaries receive an inheritance.
- Potentially protect a beneficiary's inheritance.
- Coordinate estate planning with important tax considerations.
- Reduce confusion and potential family conflict.
But a trust isn't one-size-fits-all. It should reflect your assets, your family and your goals.
Good estate planning is not about how much money you have.
It is about protecting what you have and the people you love.
Will the estate plan you have today make life easier—or harder—for your family tomorrow?
IRS Resource
IRS Publication 559, Survivors, Executors, and Administrators
Frequently Asked Questions About Arizona Living Trusts
Does a living trust avoid probate in Arizona?
A properly prepared and funded living trust can help avoid probate for assets legally held in the trust. Assets left outside the trust may still require probate unless they pass through beneficiary designations, joint ownership or another legally recognized transfer method.
What happens to a living trust after the person who created it dies?
The successor Trustee generally administers the trust according to its instructions. This may include identifying trust assets, addressing expenses and creditor claims, filing required tax returns and distributing or continuing to manage assets for the beneficiaries.
Does a revocable living trust protect my assets from my creditors?
A standard revocable living trust generally does not protect the person who created the trust from that person’s creditors. Arizona law generally makes the property of a revocable trust subject to the settlor’s creditor claims during the settlor’s lifetime. See Arizona Revised Statutes Section 14 10505.
Can a trust protect a child’s inheritance?
A properly drafted trust may allow an inheritance to remain in trust for a child or another beneficiary. Depending on the trust terms and applicable law, this structure may provide protection from certain creditors, lawsuits, divorce proceedings or poor financial decisions.
What happens if a living trust is not funded?
Signing a trust does not automatically transfer every asset into it. Property that was never titled in the trust or coordinated with the estate plan may have to pass through probate or another transfer process.
Does inherited property receive a new tax basis?
Under current federal tax law, inherited property generally receives a basis connected to its fair market value at the owner’s death, subject to exceptions. The specific tax result depends on the property, how it was acquired and the circumstances of the estate. See IRS Publication 559.
Speak With an Arizona Estate Planning Attorney
A living trust should reflect your family, assets, tax considerations and long term goals. Ilene L. McCauley helps individuals and families in Scottsdale and throughout Arizona create and review estate plans designed to protect the people and property that matter most.
Schedule an Estate Planning Consultation or call 480 296 2036.
About the Author
Ilene L. McCauley, Esq. is a Scottsdale, Arizona estate planning, probate and tax attorney who has practiced law in Arizona since 1982. She helps individuals and families throughout Arizona with estate planning, living trusts, probate, trust administration, tax planning and related family concerns. Ilene is a Certified Specialist in Taxation recognized by the Arizona Board of Legal Specialization.
Disclaimer
Ilene L. McCauley is licensed to practice law in the State of Arizona. Ilene L. McCauley, Ltd. provides legal services for clients in the State of Arizona. The information provided on this website is general and educational in nature and should not be construed as legal advice, nor does use of this material create an attorney/client relationship. Federal and state laws and regulations are complex and subject to change. No legal representation is created by this website.