I frequently get asked whether it is better to use Arizona wills or Arizona trusts. A competent Arizona estate planning lawyer can assess your assets to determine which type of Arizona estate plan is appropriate.
Wills
Many lawyers will try to convince a potential client to prepare a trust as opposed to a will. They advise that unlike a trust, a will requires expensive probate upon death. Is this really the motivation or is it to convince a client to spend more on legal fees to prepare the trust (which usually costs at least three times the cost of drafting a simple will)? In many circumstances, a will is perfectly adequate.
Most basic wills provide for the distribution of assets upon death, the care of minor children and the payment of a decedent’s final expenses (such as funeral expenses, taxes, mortgages, etc.). Moreover, probate is not always necessary when a person uses a will. You see, assets are only transferred via a will when they are not transferable via other legal instruments. For example, Arizona real estate can be automatically transferred via the terms of a beneficiary deed. If a husband and wife are listed on a deed as “joint tenants with rights of survivorship” and the wife dies, the husband automatically gets 100% title to the real estate upon his wife’s death, regardless of what a will says. A life insurance policy that designates a beneficiary will automatically convey the money to the beneficiary listed in the policy upon the holder’s death without the need of probating a will. The money from a joint bank account is automatically conveyed to the surviving co-owner of such account upon the death of the other co-owner. In other words, many large assets can be conveyed automatically without the need for probate.
In Arizona, if you have less than $75,000 worth of real estate and $50,000 worth of personal property, no probate is necessary, and property can be transferred to the beneficiaries listed in the will via a simple affidavit. Property that is conveyed by other legal means (like joint deeds, beneficiary deeds, life insurance policies, joint checking accounts) does not count towards such amounts. Therefore, the strategy of a competent Arizona estate planning lawyer is to help a client set up other legal mechanisms to transfer as much property as possible in order to minimize what actually has to be transferred via a will so that probate is unlikely and a simple affidavit can be used to transfer any remaining assets via the will.
Regardless, a person should always have a will, even if he or she believes all assets can be transferred by other legal means. Without a will, your property could be transferred to people you did not intend in accordance with the Arizona “intestacy” laws (which designate certain relatives that inherit first and relatives that inherit last).
Trusts
That is not to say that a trust is not beneficial. Think of a trust as a “mini-corporation”. The corporation documents (i.e., the “bylaws”) govern how the corporation is managed. A trust document essentially does the same thing. As long as property is conveyed into the trust, the distribution and control of such property is governed by the terms of the trust. I always like to think of a trust as a way to control “beyond the grave” the manner and method your property will be managed and conveyed. For example, instead of leaving your home outright to your son to do with as he pleases, you can specify in a trust that your son can occupy it as long as he wants, but if he ever sells it, the proceeds must be split between all of your children.
Another reason to do a trust is to help specify how your assets are controlled and managed if you become unable to manage them yourself (because of illness, being out of the country, etc.). Of course, you can frequently accomplish this by using various powers of attorneys instead of using a trust.
A trust may also minimize estate taxes that may not be possible to accomplish in a simple will. For example, in an “A/B” trust, a decedent’s assets can be split such that a certain amount goes to the surviving spouse and a certain amount goes to other beneficiaries. The amount you want to separate between the two is the maximum amount such that no estate tax will occur for any beneficiary, including those beneficiaries that will inherit after the surviving spouse dies. This is complicated to explain, but the tax benefit becomes a huge factor for people with very large estates.
One problem with a trust is that it only governs property in the name of the trust. So it is imperative for a person to transfer property into the trust in order for the trust terms to govern such property’s control and distribution. Many people forget to transfer their property into the trust, particularly property acquired after the creation of the trust. With respect to property not transferred into the trust, expensive probate may become necessary (which you are trying to avoid in the first place by using a trust in lieu of a will). Another problem is that most property conveyed to a trust is not protected or “exempt” from creditors, including a bankruptcy trustee. Most of the Arizona property exemptions apply to property owned by individuals, not trusts or companies.
Of course, every person’s estate planning needs are different, and careful estate planning by a competent Arizona estate planning lawyer is essential before deciding whether a will or a trust is in the person’s best interest. No matter what, every person should have a will or a trust.