Why You Should Consider Creating a Trust
Do I need a trust? What exactly is a trust? Isn’t a will just as good as a trust? These are common questions we hear from our estate planning clients. There is also a common misconception that trusts are only necessary for or used by the wealthy. The bottom line is that trusts offer many benefits over traditional wills that are useful no matter your net worth. Follow along as we walk through some of the differences between wills and trusts, and the benefits of having a trust.
What is the Difference Between a Will and a Trust?
A traditional will is simply a document with written instructions on how you want your property to be distributed upon your death. It also handles other important matters, such as appointing a personal representative to administer the estate and waiving an expensive bond for the personal representative. However, having only a will means your personal representative will have to initiate the probate process to administer your estate. This is both more costly and time consuming in the long run than having a trust.
A trust is simply a contract that creates a fiduciary relationship between you (the trust creator), the trustee (person who administers the trust), and your beneficiaries (the people you want to receive your property and other assets). If it is a revocable trust (i.e., a living trust), it can be amended or revoked at any time, and you still maintain full control over your property for your own benefit until your death just as you would if it were not in a trust. However, upon your death, the trustee usually can completely avoid the probate process, saving everyone time and money.
What is a Pour-Over Will?
For our clients who decide to create a revocable living trust, we will also draft a pour-over will which acts as a safety net of sorts to ensure any property not transferred to your trust can be collected by the trustee. As the name implies, it simply “pours over” any leftover assets into your trust. However, that requires probate again, so it is important to ensure all of your assets are either transferred to the trust or have a beneficiary designation in order to avoid probate.
Why Would I Want to Avoid Probate?
Probate has a bad reputation and for good reason. Although the probate process is not as grueling in Arizona as it is in many other states, it is still expensive and takes around five to six months to complete in the best case scenarios. Even the most straightforward, uncomplicated probate, called informal probate, will typically cost more for one spouse than it would cost to create a trust for both spouses. Time wise, a trustee can begin administering a trust, paying creditors, and distributing assets to beneficiaries much faster than if probate were needed.
The bottom line is that if you have more than $75,000 in personal property and over $100,000 in equity in real estate your best option may be to create a trust, provided that you can afford the upfront costs of creating one. If this sounds appealing, give us a call to schedule a consultation to determine whether a trust is right for you.