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Wills and Trusts
Everyone
should have a Will or Trust, period. To discuss Wills and Trusts
you must start with this premise, however reality does not reflect
this premise. People put off executing Wills & Trusts for a myriad
of very understandable and human rationales. Too morbid to think
about your demise. Too busy. Too expensive. The list goes on and
on. Who among us wants to think about his or her mortality?
Another reality is
that eventually we will all leave this life and if you do so
without a Will or Trust the State of Arizona, not you, will decide
what will happen to your assets. If you have minor children, a
judge will decide who will take care of them. This is a very
sobering thought at best and should be enough to prompt some
serious thought as to what kind of estate planning, if any, you
have in place.
This is a good time
for a brief discussion as to the differences between a Will and a
Trust, and who should have what? Like most things it comes down to
money. If you have less than $50,000.00 in personal property
and/or less than $50,000.00 in real property, a Will is probably
for you. In other words, if you realistically evaluate the value
of your personal property, meaning everything you own except for
your real property (home, time share, etc.), and that number is
less than $50,000.00 you have passed the Will qualifying step No.
1. Qualifying step No. 2 requires another calculation of the
equity you have in your real property. If both calculations taken
separately (you do not add the value of personal property with the
value of real property, they are valued separately) are less than
$50,000.00 a Will generally will suffice. If either of your
calculations shows a value greater than $50,000.00 a Revocable
Living Trust should be considered.
The reason for the
qualifying calculations above is directly related to the nuances
of the Arizona probate process. When a person passes, with
(testate) or without (intestate) a Will the probate process is
used to wrap-up their affairs, distribute assets, and choose
guardianship for any minor children. The Arizona probate process
has differing levels of complexity and associated costs depending
upon the value of the deceased’s estate. If you do not possess a
significant amount of property, defined in Arizona as owning less
than $50,000.00 in either personal or real property, the probate
process is relatively inexpensive and short lived. Those left
behind should expect to pay approximately $2,000.00 to probate a
small, uncontested, testate (died with a valid Will) estate. The
cost associated with the probate of an intestate estate will
depend upon the specific case facts but expect to pay an
additional amount equal to at least the original testate cost.
Costs will skyrocket if the Will is contested irrespective of the
estate’s value. As to the cost to create an appropriate Will
Package (accompanying associated documents are described below), a
simple estate Will package should cost approximately $500-1000
depending upon complexity. Obviously, if you have been fortunate
to have accumulated significant assets the cost will increase
accordingly.
With a Revocable
Living Trust Package the discussion above relative to the probate
process is not applicable. If a person executes and properly funds
a Revocable Living Trust, there is generally no probate
process to endure. However, do you “need” a Revocable Living
Trust? Although there are many factors to consider in developing
any estate plan, as a general rule if your assets exceed the
probate limits discussed above you should consider a Revocable
Living Trust Package. A Revocable Living Trust accomplishes the
same goals of distributing assets and settling affairs as a Will
but does so quickly and without opening a probate case.
Essentially, a
person (or persons) create(s) a Revocable Living Trust in the same
manner as you would a Will. Information is gathered, the Revocable
Living Trust is created and executed (signed), and assets are
funded to the Revocable Living Trust. The procedures required to
“fund” a Revocable Living Trust differs as to each type of asset.
However to be funded, and thus subject to Arizona Trust law, the
Revocable Living Trust must “own” the asset and possess legal
title. For example, a Quit Claim Deed is used to transfer title to
Mr. & Mrs. Trust Client’s home naming the “Mr. & Mrs. Trust Client
Revocable Living Trust” as the new owner of the home.
There are several
important Revocable Living Trust points to consider. Generally but
not always, the Trustor(s), the person(s) who create the Revocable
Living Trust, are also the Trustee(s) and retain control of all
Revocable Living Trust assets. Another important point is that
a Revocable Living Trust is private and is not recorded (although
it may be) for public consumption while a Will is recorded and
subject to public scrutiny. Assets not funded to the Revocable
Living Trust will require probate negating the prime advantages of
a Revocable Living Trust. Some assets should not be funded to the
Trust. Your legal professional will be able to advise you of the
pros and cons of each asset. Finally, a Revocable Living Trust is
not a tax planning vehicle and should be thought of as a probate
avoidance tool.
Is there a downside
to a Revocable Living Trust? The initial cost is greater than a
simple Will. Expect to pay a minimum of $1,000 for a complete
Revocable Living Trust Package. As with a Will Package costs will
increase with complexity and the level of service necessary.
Though initial costs are higher with a Revocable Living Trust,
over the long run a Revocable Living Trust becomes very cost
effective when the cost to probate is factored in. As with
everything you get what you pay for and the services provided by
an attorney will far outweigh the costs.
Ancillary Will- Revocable Living
Trust Package Documents
Beside the actual Will or Revocable Living
Trust document, the following documents should be part of any
proper Will or Revocable Living Trust estate plan.
Durable Financial Power of
Attorney: Exists when a person executes a power of
attorney which will become effective in the event he/she should
later become disabled.
Healthcare Power of
Attorney: Allows a person to name a person (called an
“attorney-in-fact”) to make healthcare decisions on their behalf
if unable to do so themselves.
Living Will:
Allows a person to memorialize their wishes as to their
healthcare. Is used in conjunction with Healthcare Power of
Attorney.
Mental Health Power of
Attorney: Same as Healthcare Power of Attorney but
relates to mental health issues.
Pre-hospital Medical
Directive: “Do not resuscitate” document.
Separate List:
Allows a person to make specific bequests. (There are specific
Arizona statutory requirements that must be followed to make the
bequest legally enforceable.)
A Revocable Living Trust Package
includes the documents noted above and may include the following
as needed;
Amendment to Trust:
Generic form allowing a Trustor/Trustee to make changes to their
Revocable Living Trust.
Comprehensive Transfer
Document: Whereas a Declaration of Intent is a brief
statement of Trustor/Trustee intent, the Comprehensive Transfer
Document contains further detail and is used in conjunction with
the Declaration of Intent.
Declaration of Intent:
Notarized document stating the Trustor(s) intent that personal
property, however titled, whenever obtained, is to be considered
property of the Revocable Living Trust. Not a substitute for the
actual funding of assets to the Revocable Living Trust and is used
in conjunction with a Comprehensive Transfer Document.
Funding Instructions:
General instructions as to the procedures required to transfer
property into a Revocable Living Trust.
Glossary of Terms:
Definitions of the legal terminology used in a Revocable Living
Trust.
Pourover Will:
Will used in conjunction with the Revocable Living Trust to state
the person’s afterlife wishes.
Quit Claim Deed(s):
Document used to transfer real property to a Revocable Living
Trust.
Settling the Estate
Instructions: General instructions on how to wrap up
the affairs of a deceased person.
Summary of Trust:
Notarized document declaring the creation of a Revocable Living
Trust. Used as a means to inform interested 3rd parties
of the Trust’s existence.
Summary of Trust Clauses:
Explains the individual Clauses of a Revocable Living Trust.
Trustee Instructions:
Provides guidance to the Trustee.
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