by Lori Curtis
1. What is the difference between a Living Trust v. a Testamentary Trust?
A “living” trust is simply one that is created during your lifetime, while a testamentary trust is created through trust provisions written into your will which does not come into existence until your death. However, in Arizona, a testamentary trust means a one-way ticket to probate court. After probating the estate of a person with a testamentary trust the Personal Representative of the probate estate transfers assets from the probate estate to the trustee of the trust estate. One advantage of a living trust is that, as long as it is funded during your lifetime, the living trust can help your estate avoid probate.
2. What is the difference between a Revocable Trust v. an Irrevocable Trust?
A revocable trust may be changed, amended or revoked at any time while you are still living and are competent to do so. You remain the owner of any assets transferred to the trust. An irrevocable trust generally may not be changed or amended by the trustor (or trustmaker) once it is created and takes away your ownership of any assets transferred to the trust. A revocable trust generally becomes irrevocable upon your death, or you can create an irrevocable trust while you are living in order to remove assets from your taxable estate, or for any other number of reasons appropriate to your individual estate planning needs.
3. If I transfer assets to my Revocable Trust, will that protect them from creditors?
Generally, no. A living revocable trust protects your assets from probate but it does not protect your assets from your creditors. A living revocable trust can be designed to protect assets from the creditors of your beneficiaries after you die, but while you are alive, you are still considered the owner of those assets and a court will hold that those assets are available to pay your creditors.
4. Does creating a trust automatically mean I can avoid probate?
No. The trust needs to be “funded” to avoid probate. This means ownership of your assets must be transferred to the trust.
5. If I list all my assets on a Schedule attached to the trust does that transfer ownership to the trust?
Generally, no. You can transfer personal property by a signed document attached to the trust, but other assets must be transferred differently. For instance, ownership of real property is transferred by recording a deed with the county recorder. Ownership of bank accounts must be transferred by filling out the specific forms provided by your bank. Other assets have different rules for transferring ownership. For questions on how to transfer ownership of an asset, you should consult with an attorney.
6. I don’t understand the trust documents I received from my attorney. Can they be rewritten so they are easier to understand?
It depends. There are different ways of saying the same thing. Sometimes, a phrase can be rewritten so it is easier to understand. However, the language used in your trust is a result of refinements in the law over hundreds of years and the terms and phrases used have a particular meaning under the law. If a judge needs to interpret your trust, she will rely on the legal definition. It is for this reason that language is used. If you do not understand parts of your trust, ask your attorney to explain them to you.
7. Can I change the terms of the trust myself?
First, changes to a trust should never be made on the original document. You absolutely should not just cross something out and write in a new provision. This will subject your trust to being challenged in court after you die. A trust should be changed by a written amendment.
Second, your trust is an integrated document. Changing one part of your trust may affect other provisions of the trust. And remember, there is a certain “legal language” that should be used so that a judge will interpret the document consistent with your wishes.
If you need changes to your trust, please consult with an attorney. It may save your estate from being litigated after you are gone.
If you have determined that you need changes made to your trust or if you are ready to create a trust, please call 480-733-6800 and ask to speak with Lori Curtis, or visit our website at davismiles.com.