17 Aug 8 Reasons You Should Set Up a Trust

Trusts aren’t just for the wealthy, they’re for anyone looking to save their family time and money after they pass away. There are many reasons for creating a trust, from controlling the distribution of your assets to protecting loved ones with disabilities. At Phelps LaClair, we can help you establish a trust that meets all of your needs. 

Not sure if a trust is right for you? Continue reading to learn why your estate plan should include a trust. 

What Is a Trust, and Who Can Create One?

A trust is a legal agreement between the grantor (creator of the trust) and the trustee (appointed by the grantor). And anyone living in Arizona is legally entitled to establish a trust. You can even create multiple trusts if you need to. There are many different types of trusts, each with unique purposes when it comes to the management and distribution of your assets. 

Every trust is created by a “grantor” who must name an administrator called a “trustee.” The trustee doesn’t have to be a third party—you can name yourself as trustee, and appoint a successor trustee to manage and distribute your assets after you have passed. You also have the option to name one of your beneficiaries as a trustee. However, if a trust has only a single beneficiary, they cannot also be named as the trustee. 

Along with the flexibility that trusts provide, there are many more reasons why you should establish a trust to protect your assets. From avoiding probate and securing your privacy, to making charitable donations or providing for loved ones with special needs, here are some of the reasons that you need to establish a trust.

Eight Reasons You Should Have a Trust

1: Avoid Probate

Unlike wills, trusts can avoid probate court altogether. This is the most important reason why you should establish a trust! Probate is the legal process of administering an estate, but it can be expensive, time-consuming, and burdensome for your family. Because ownership of your assets gets transferred to the trust after your death, assets held in any type of trust are not subject to probate.  

2: Reduce Estate Taxes

Luckily, there is no estate tax in Arizona, and most Arizona residents are exempt from federal estate taxes. However, if you have a particularly large estate or legally live in another state, it’s a good idea to create a trust to help you reduce your estate taxes. Placing some of your assets in a trust reduces the size of your taxable estate. Keep in mind, however, that estates worth more than $12.06 million are subject to the federal estate tax.  

3: Provide for Loved Ones with Special Needs

If you have a child or a loved one with special needs, you can provide for their future with a special needs trust (SNT). Placing assets in an SNT allows your loved one to receive income without it affecting their eligibility for government assistant programs. Or, if you have a disability, you can create your own special needs trust thanks to the “Special Needs Trust Fairness Act.” 

As the beneficiary of the trust, you or your loved one can use its income to pay off medical bills, transportation costs, caretaker paychecks, and more. However, the SNT beneficiary cannot use the trust income for food or shelter. Using the income from a trust in this way would count toward the limits for government benefits. 

4: Give to Charity

Charitable trusts allow you to leave assets like money or real estate to a charitable organization after your death. With a charitable remainder trust you can decide to leave specific assets to your loved ones as beneficiaries, and donate whatever is left of your estate to charity. A charitable lead trust allows you to do the opposite—donate to charity first, and then leave the remainder to your beneficiaries. Charitable contributions made through a trust are even tax deductible in most cases. 

5: Flexible Distribution of Assets

When you transfer assets through a will, the transfer happens automatically upon your death. However, creating a trust allows you to decide when and how to distribute your assets to your beneficiaries. 

For example, you can establish a trust that stipulates that your child must graduate college before they can receive their inheritance. Or, you can state that they will start receiving their inheritance at age eighteen, but will collect it in a series of installments over a set number of years. 

If you create a revocable, or “living” trust, there’s even more flexibility. With a living trust, you can add or remove assets and beneficiaries to or from the trust at any time. This allows you to add new children and grandchildren and fund the trust with new assets over time. 

Because you retain ownership of the assets in a living trust, you still have access to any assets held in the trust and can make any changes you like during your lifetime. After your death, ownership of the assets transfers to the trust. The trust then becomes irrevocable, and no one, not even the trustee, can change the assets or beneficiary designations. 

6: Plan for Illness or Disability

Another reason to have a trust is that, unlike a will, a trust can go into effect before your death. If you become incapacitated in any way, your trustee can manage your assets on your behalf. You can leave instructions for paying your bills, filing tax returns, and more in the event you are unable to do so yourself. Life is unpredictable, so it’s a good idea to create a trust and choose a reliable trustee sooner rather than later, even if you haven’t been diagnosed with a degenerative disease.  

7: Prevent Family Disputes

You can distribute your assets more fairly and more specifically with a trust than with a will. A trust gives your loved ones a clear idea of your final wishes, so there will be less of a chance of family disputes. 

For instance, you can leave your family business in a trust and determine the ownership interests for each beneficiary, along with specific conditions that must be met for running the business. Or, you could leave a family vacation home in a trust and include instructions for how long each beneficiary gets to use it during the year.

8: Secure Your Privacy

Trusts also offer more privacy than wills. Since a trust doesn’t have to go through probate, there is no public record. With a trust, no one other than your beneficiaries needs to know what assets you leave and who you left them to, protecting your privacy and further reducing the risk of family conflict. Some states do require you to register a trust (which would create a public record) if it contains specific assets, but Arizona is not one of them.

Arizona Estate Planning Attorney

If any of these reasons for creating a trust resonate with you, contact the expert estate planning attorneys at Phelps LaClair. We have been helping Arizona families establish and manage their trusts successfully for over 40 years. We can also help you draft a will, assign power of attorney, and assist with other important elements of the estate planning process. If you have any questions, or would like to schedule a consultation, please call us at 480-892-2488 today.

Images used under creative commons license – commercial use (8/17/2022). Photo by Amy Hirschi on Unsplash