Types of Family Trusts in an Arizona Estate Plan
What is a Family Trust in an Arizona Estate Plan
An Arizona family trust can be completed as a part of an Arizona estate plan when a person is still living or drafted after a person passes away. After a family trust has been created, you need to add your assets to the trust. Your assets do not become trust property until they are added to the family trust, referred to as funding the trust. You fund the trust by changing the title of your assets to reflect they are now owned by the family trust.
You will also appoint a Trustee to manage the assets contained in an Arizona family trust. Understand that the Trustee only manages the assets in the Trust. They do not, however, have any ownership of the assets in the Trust. The Trustee is required by Arizona law to manage the assets in the family trust in accordance with the directives contained in the family trust documents. The Trustee owes a fiduciary duty to the Trust and the ultimate beneficiaries of the Trust.
Revocable Family Trusts in Arizona
A revocable family trust in Arizona is created while a person is still alive. The person for whom the family trust is created can make any changes he or she wants to during his or her lifetime. A person who makes a recovable family trust also retains the right to cancel or terminate the trust while he or she is alive. The Trustee of a revocable family trust in Arizona is almost always the person for whom the trust is being created.
A person may consider creating a revocable family trust to avoid his or her family having to go to the probate court in Arizona to distribute his or her assets to his or her heirs. Some people erroneously believe that assets placed in the family trust will be protected from creditors. A family trust is not an asset protection strategy as creditors can execute upon the assets held in the family trust. Also, the revocable family trust cannot be changed once the person for whom the trust was created passes away.
Irrevocable Family Trust in Arizona
Unlike a recovable family trust, an irrevocable family trust in Arizona cannot be changed or revoked. Likewise, property titled into the family trust may not be removed from the trust. An irrevocable trust is sometimes created to hold title to a life insurance policy for trust tax purposes for large estates that are worth more than the tax-exempt amount set by federal law. Many people choose not to create an irrevocable trust because of the dangers of not being able to remove property from that type of trust.
Arizona Family Trusts for Asset Protection
Some trusts are created for the primary purpose of protecting a person’s assets from creditors. These trusts are not typically set up in the United States. The assets in the Arizona asset protection trust remain in the United States despite the asset protection trust being located in another country. The maker of the trust is not named as the beneficiary of the trust and these trusts typically terminate automatically after a certain number of years unless there are creditors awaiting the termination of the trust in which case the trust will continue to be in effect. There are many important income tax and other legal implications surrounding theses asset protection trusts, so it is imperative that you contact an attorney experienced in creating these asset protection trusts.
Arizona Charitable Trusts
Some people create an Arizona charitable trust because they want to give back to their community or for income tax reasons. If your estate is over the federal exemption amount, the excess amount will be heavily taxed. In such cases, a person may choose to create an Arizona charitable trust to decrease the size of their estate. They still retain the use of the assets or money in the charitable trust until they pass away at which time the assets or money would transfer to the named charity.
Arizona Constructive Trusts
A constructive trust is a legal construct whereby a judge determines that a person intended for his or her property to be passed along to someone else or used for a particular purpose. Although the person to whom a judge believes has constructive trust over property does not hold legal title to the property, they are said to have equitable title to the property. Understand, this can only be done by a judge after hearing evidence on the issue of the creation of a constructive trust.
Arizona Special Needs Trust
An Arizona special needs trust is designed to allow a person to set up a trust to provide benefits to someone with special needs without disqualifying that person from public assistance programs. This complies with federal social security laws, so long as the person making the trust retains sole control over the assets in the special needs trust and distributions from the trust to the beneficiary. The benefits from the trust can only be used for limited purchases necessary for the treatment and care of the special needs recipient.
Arizona Tax By-Pass Trust
An Arizona tax by-pass trust permits a person to transfer his or her assets to his or her spouse. The spouse receiving the funds and assets in the trust will not have those monies included in his or her total estate upon his or her death. This tax by-pass trust in Arizona is used to minimize estate taxation on the surviving spouse during his or her lifetime. However, the heirs of the surviving spouse will be responsible for the estate tax upon the death of the surviving spouse.
If you have questions about family trusts in Arizona, you should call our experienced Scottsdale Arizona family trust attorneys at (480)947-4339 for a free consultation.