Written By Attorney Lori A. Curtis
One of the best ways to avoid probate is to have a Revocable Living Trust (or more simply, a Living Trust). A Revocable Living Trust is a legal document in which a Grantor gives or “grants” their property to a Trustee to hold and own for the Grantor, which in turn are invested and spent for the Beneficiaries.
In a Revocable Living Trust, the Grantor, the Trustee, and the initial Beneficiary are usually all the same person – you! If you were to become incapacitated, the Successor Trustee would step in to manage the property for your benefit. When you die, the Successor Trustee manages and distributes the assets to the remainder Beneficiaries.
However, simply having a trust does not avoid probate or taxes. Once a trust is created, it is like an empty treasure chest. To avoid probate you must transfer ownership of your assets from yourself to your trust – in other words, you need to fill the treasure chest.
Assets put into a Revocable Living Trust during the Grantor’s lifetime will no longer be owned by the Grantor but by the Trustee of the trust, so there is no need for the trust assets to be probated when the Grantor dies. Instead, the Successor Trustee can administer or “settle” the trust outside of probate – without court supervision or interference.
Although there are some exceptions, assets not held in trust at death will generally have to go through a probate proceeding and may subject the estate to additional estate taxes. For this reason, we strongly recommend that once you create your Trust, you transfer your assets into the Trust.
There are some exceptions. For example, some automobile insurance companies do not provide insurance coverage when a trust is the insured, or they may charge significantly higher premiums, so it would be impractical to transfer an automobile or other titled vehicle into the Trust. And, in Arizona, it is possible to transfer your vehicle outside of probate through the use of a beneficiary designation form, which can be found online at the Arizona Department of Transportation’s webpage at www.azdot.gov. There are also other instances where you do not want to transfer assets to the Trust, as there may be certain tax consequences for you and your estate.
In general, though, you will want to fund the Trust and “fill the treasure chest.” In some cases, a simple assignment is sufficient to transfer assets into your Trust. In other circumstances, you must file certain documents with the appropriate governmental entities. For instance, transferring real estate interests such as land, buildings, oil and mineral rights, water rights, mortgages, contracts for sale, deeds of trust, leases, and similar items requires filing a deed in the County Recorder’s Office. Other assets may require filing the appropriate documents with the Corporation Commission, or filling out specific forms with the financial institution where your bank accounts are located.
A Revocable Living Trust may be one of the best investments you ever make, not only in terms of the potential savings in probate costs, but also in the peace of mind that comes from, among other things, knowing that in the event of incapacity during your lifetime, a Successor Trustee can step in to manage the assets in the Trust on your behalf.
If you have any questions about creating a Revocable Living Trust, or if we can be of assistance to you as you fund and administer the trust, please give us a call. We would be happy to assist you and answer any questions you may have.