trust

You Definitely Want to Get Professional

Help to Create Your Power of Attorney, Will, and Trust 

A living trust, also known as an inter vivos trust, is a legal arrangement commonly used in estate planning. It allows you to manage your assets during your lifetime and facilitates the transfer of those assets to beneficiaries after your death. 

Let’s explore how to set up a living trust:

Choose What Property Should Be Transferred:

Identify the assets you want to include in the trust. 

These can be real estate, bank accounts, investments, and other valuable possessions.

Keep in mind that transferring ownership of a home with a mortgage might trigger a due-on-sale clause, potentially requiring full loan payment. 

However, using an inter vivos trust may allow the grantor (you) to remain in the home and serve as the trustee.

Create the Legal Document:

Draft a formal legal document called a Declaration of Trust or trust instrument.

This document:

Establishes the trust.

Names the trustee (and successor trustee).

Identifies the beneficiaries.

Specifies when and how trust property will be transferred to beneficiaries.

Choose a Trustee:

Select someone to manage the trust assets. You can be the initial trustee, but you’ll also need to designate a successor trustee for when you’re no longer able to fulfill the role.

Name Beneficiaries:

Decide who will benefit from the trust assets. These beneficiaries will receive the property according to your instructions.

Revocable vs. Irrevocable Living Trusts:

Revocable Living Trust (RLT):

Can be modified during your lifetime.

Provides limited asset protection.

Assets within it may still be subject to estate tax.

Irrevocable Trust:

Difficult to modify.

Offers more asset protection.

May allow avoiding estate tax under certain circumstances.

Remember that estate planning is a complex process, and consulting with a legal professional or estate planning attorney is advisable to ensure your living trust aligns with your specific needs and goals.

Oh, yes There is a lot to consider in choosing the Correct Trust for you!!! 

Let’s take a look at the different types of trusts 

16 Types of Trusts

Revocable Trust

Irrevocable Trust

Joint Trust

Bypass Trust

QTIP Trust

Charitable Trust

Asset Protection Trust

Charitable Trust

Constructive Trust

Totten Trust

Blind Trust

Life Insurance Trust

Spendthrift Trust

Generation-Skipping Trust

Qualified Personal Residence Trust (QPRT)

Pet Trust

Revocable Trust

Good for: People looking for flexibility in managing their assets during their lifetime

A revocable trust can be changed or canceled by the grantor at any time as long as the grantor is mentally competent at the time of the decision.

If you expect certain life changes (e.g., birth of a child) that can prompt the need to amend a trust, consider making your trust revocable for flexibility.

Keep in mind that the grantor still owns the assets in a revocable trust; therefore, they must report any revenue generated by the trust on their taxes.

Revocable trusts become irrevocable trusts when the grantor dies.

Irrevocable Trust

Good for: High-net-worth individuals looking for estate tax benefits and greater protection

An irrevocable trust cannot be modified or revoked without its beneficiaries’ permission or the court’s interference.

Once it is established, the grantor relinquishes ownership and control of the assets listed in the trust,

which are transferred out of their estate.

Unlike a revocable trust, an irrevocable trust pays its own taxes and files a separate tax return.

Despite its lack of flexibility, irrevocable trusts offer asset security and tax advantages,

making them an attractive type of trust for people with large or complex estates. 

However, the tax implications of irrevocable trusts can be complex.

Joint Trust

Good for: Married couples who want to manage and distribute assets together

A joint trust combines the assets of both spouses or committed partners for easier management and distribution. This type of trust is revocable before the second spouse passes away; both parties have the ability to manage and control the assets, often with the aim of passing them seamlessly to beneficiaries upon death.

One key advantage is administrative convenience, as there’s only one set of documents to manage. However, this type of trust can be inflexible, particularly when it comes to tax planning or if the spouses have different beneficiaries in mind.

When creating a joint trust, couples should carefully discuss their individual wishes for asset distribution and consider consulting a tax advisor to understand any potential tax implications.

Bypass Trust

Good for: Blended families for control over the disposition of assets after both spouses’ death

A bypass trust, also known as an AB trust or credit shelter trust, is designed for married couples. It aims to protect and shield assets for beneficiaries while offering flexibility to a surviving spouse. In the context of blended families, a bypass trust could prevent the surviving spouse from altering the original allocation of assets.

Upon the first spouse’s death, the trust splits into two parts: an A Trust (survivor’s trust) containing the surviving spouse’s share, and a B Trust (bypass trust) containing the deceased spouse’s share. The B Trust becomes irrevocable, thus safeguarding the inheritance for the deceased spouse’s children. Any income generated by the trust does not have to be paid to the surviving spouse.

Bypass trusts offer protection to both the surviving spouse and the children from the deceased spouse’s previous marriage. It’s also off-limits in cases of remarriage and divorce. However, the trust requires careful legal structuring and consideration of potential tax implications.

Qualified Terminable Interest Property Trust (QTIP Trust)

Good for: Married individuals with significant estates seeking to minimize estate taxes

A QTIP trust allows couples to optimize tax benefits while ensuring that assets are distributed according to their wishes. This type of trust is designed to qualify for the unlimited marital deduction, thereby sidestepping gift and estate taxes, while providing financial support to the surviving spouse.

The advantages of a QTIP Trust include tax benefits on top of the ability to control the final distribution of assets. However, the trust has rigid guidelines that must be strictly followed, including that:

Only the surviving spouse can be the beneficiary of the trust during their lifetime; and

The trust must distribute all income generated to the surviving spouse at least annually (which is different from a bypass trust).

Failure to adhere to these rules can forfeit the tax benefits.

When establishing a QTIP Trust, work with an experienced attorney to ensure all guidelines are met. Special attention should be given to the documentation and tax filings needed to qualify the trust for the marital deduction.

Special Needs Trust

Good for: Families with disabled dependents

A special needs trust is established to meet the financial needs of a dependent with special needs and appoints them as the beneficiary. It funds the beneficiary’s medical care or day-to-day needs while retaining the dependent’s qualification to receive government benefits such as Supplemental Security Income (SSI). There are two main types of special needs trusts: first-party and third-party.

Asset Protection Trust

Good for: High-net-worth individuals looking to protect assets from creditors or litigation.

As the name would suggest, asset protection trusts (APTs) are the best type of trust to protect your assets against creditors, legal disputes, or judgments against your estate. This trust is irrevocable and allows the trustee to hold your assets to protect them from taxation, divorce, bankruptcy, and other judgment creditors.

It’s essential to set up this trust well before any legal claims arise; otherwise, it might be considered a fraudulent transfer.

Spendthrift Trust

Good for: Those wishing to shield assets from a financially irresponsible beneficiary

A spendthrift trust is helpful if you believe your heirs will squander their inheritance. It allows you to specify when and how your beneficiaries may access assets designated to them.

For example, you could state that beneficiaries may only receive income from the assets rather than access the entire principal amount. Doing so ensures the beneficiary has a stable, long-term source of financial support. However, it takes away financial control from the beneficiary and can be complicated to manage.

If creating a spendthrift trust, the grantor should carefully consider the choice of trustee, who will have significant control over how the assets will be distributed to the beneficiary.

Generation-Skipping Trust

Good for: High-net-worth individuals who want to leave assets to later generations while avoiding estate taxes

You can set up a generation-skipping trust if you prefer your estate to go to your grandchildren (or later generations) rather than your children. By transferring the assets to your grandchildren instead of your children, the assets enjoy estate tax exemption. However, you can give your children access to income generated by those assets.

Generation-skipping trusts can be complex and may trigger the generation-skipping transfer tax. Grantors should be aware of tax thresholds and consult tax professionals when setting up this type of trust.

Life Insurance Trust

Good for: Individuals looking to exclude life insurance proceeds from their taxable estate

A life insurance trust, often called an irrevocable life insurance trust (ILIT), is designed to hold the proceeds of your life insurance policy. It is irrevocable and allows your life insurance payouts to be invested and distributed by the trustee without incurring taxes for the beneficiaries.

Note that this kind of trust requires relinquishing ownership rights to the policy. This means that the insurance policy is owned by the trustee but not the insured (grantor). When the insured dies, the trustee collects the policy proceeds. Those proceeds can be distributed to the trust’s beneficiaries, who can use them to pay estate taxes.

Qualified Personal Residence Trust (QPRT)

Good for: Homeowners wanting to reduce taxable estate but retain temporary residence rights

A Qualified Personal Residence Trust (QPRT) allows a homeowner to transfer their home to an irrevocable trust while retaining the right to live in it for a certain period. The QPRT can effectively remove the home’s value from the taxable estate, possibly saving on taxes.

However, one downside is the loss of flexibility; once the property is in the trust, it’s challenging to undo the arrangement. Moreover, if the grantor outlives the term specified, the tax benefits might be nullified.

Charitable Trust

Good for: Philanthropists

A charitable trust is established during the grantor’s lifetime (i.e., a living trust). It distributes assets to the chosen non-profit or charitable organization upon the grantor’s death. This irrevocable trust allows the charity to avoid or reduce estate or gift taxes.

There are two popular types of a charitable trust: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). CLTs provide income to a charity for a set period of time, after which the remaining assets go to the grantor or a designated beneficiary. On the other hand, CRTs provide income to the grantor or another beneficiary to start, and then the remaining assets go to a charity.

Both types aim to benefit charities but differ in their approach to tax advantages, income distribution, and the eventual recipient of the trust’s principal assets.

Charitable trusts can also be incorporated into a standard trust so that the trustor’s heirs receive part of the estate and the charity receives the remainder.

Constructive Trust

Good for: Correcting unjust enrichment or fraud

A constructive trust is created through a court’s power when the court determines that a party secured possession of assets unfairly (i.e., unjust enrichment) or by fraud. The purpose is to correct the situation and transfer the assets to the rightful owner(s). Therefore, a constructive trust doesn’t have a trustee.

There’s no set formula for when a constructive trust should be established, but common scenarios involve stolen property, fraudulently acquired assets, or items mistakenly given to the wrong person.

If no other sufficient legal solutions are available, then a constructive trust can be an option.

Totten Trust

Good for: People looking for a simple way to pass on simple assets without probate

A totten trust (or a payable-on-death account) allows you to pass on a bank account directly to a beneficiary without probate upon your death. The beneficiary doesn’t have access to the accounts while you are alive.

Totten trusts are revocable and relatively simple to manage compared to other trusts. However, it’s limited to certain financial assets and doesn’t offer the flexibility or protections of other trusts.

Blind Trust

Good for: Individuals who need to avoid conflicts of interest

A blind trust, which can be either revocable or irrevocable, allows the grantor to relinquish control over assets to an independent trustee to avoid conflicts of interest, as the trustee manages the assets without the beneficiaries’ knowledge. The beneficiaries have no input into how the assets are handled.

Although blind trusts are particularly helpful when conflicts are likely among the beneficiaries, ensure the chosen trustee is highly trustworthy and competent, as they will have full discretion over the management of the trust funds and assets.

Pet Trust

Good for: Pet owners who want to ensure their animals are well cared for after they pass away

A pet trust is a legal arrangement that ensures your pet’s well-being in the event of your death or incapacity. Unlike a will, which may leave the care of your pet uncertain, a pet trust creates a binding obligation for a designated trustee to follow your specific instructions for your pet’s care. The trust can detail anything from the type of food your pet should eat to its walking schedule.

One major advantage of a pet trust is its immediate effectiveness upon your death or incapacitation. It also allows for periodic inspections to ensure the pet’s caregiver is following your wishes. Funds in the trust can be dispersed in installments, ensuring longer-term care.

When creating a pet trust, it’s crucial to consider state laws, which may limit the trust’s duration. For instance, some states terminate pet trusts after 21 years, which could be problematic for pets with longer life expectancies. Also, it’s advisable to appoint an “enforcer” to oversee the trustee’s actions, as pets cannot legally enforce the terms of a trust.

With many different trust structures available, deciding which one is right for you can be challenging.

Each kind of trust described above has unique features, but they all share expected benefits,

including estate tax reduction and avoidance of probate. 

Whichever type of trust you choose to protect your assets, you can be assured that you’re making a necessary, responsible choice for your loved ones.

Having your Trust Created and Activated, 

is just one part of  effective estate planning!

Essential Incapacity Plan Documents and Their Role in Estate Planning

Facing the possibility of incapacity due to illness, accidents, or other unforeseen circumstances is a sobering thought. However, planning ahead can provide peace of mind for you and your loved ones. Here are the key documents you need to complete as part of your incapacity plan, along with their connection to estate planning:

Living Will:

Purpose: A living will (also known as an advanced medical directive or health care proxy) outlines your wishes regarding medical treatment if you become incapacitated due to a terminal illness or other critical conditions.

Estate Planning Connection: Unlike a Last Will and Testament, a living will does not address property distribution. It focuses solely on your health care preferences.

Do-Not-Resuscitate Order (DNR):

Purpose: A DNR specifies under what conditions you refuse medical treatments after your heart stops or you stop breathing.

Estate Planning Connection: A DNR can be part of your living will provisions, ensuring your end-of-life choices are honored.

Durable Medical or Health Care Power of Attorney:

Purpose: This document grants someone the legal authority to make health care decisions on your behalf when you cannot communicate your wishes.

Estate Planning Connection: When combined with a living will, it ensures that your medical choices are respected by your appointed agent.

Durable General Power of Attorney for Finances:

Purpose: With this document, you authorize someone to manage your financial affairs if you become incapacitated.

Estate Planning Connection: It ensures that your bills, investments, and financial matters continue smoothly even during your incapacity.

Revocable Living Trust:

Purpose: A revocable living trust allows you to transfer assets into a trust during your lifetime. You remain the trustee and maintain control, but if you become incapacitated, a successor trustee takes over.

Estate Planning Connection: A living trust helps manage your assets during incapacity without the need for court intervention. It also facilitates seamless asset distribution upon your passing.

Remember, these documents are essential components of both your incapacity plan and your broader estate planning strategy. Consult with legal professionals to create a comprehensive plan tailored to your specific needs. By doing so, you’ll ensure that your wishes are honored and your loved ones are well-prepared during challenging times.

Power of Attorney

Durable Power of Attorney (DPOA):

A durable power of attorney remains effective even if you become incapacitated. For instance,

if you fall into a coma, your agent retains the authority to make financial or health-related decisions on your behalf.

It automatically ends upon your death.

You can revoke a durable POA using a revocation of power of attorney form as long as you’re competent.

Non-Durable Power of Attorney:

A non-durable power of attorney expires if you become incapacitated or pass away.

If you fall into a coma, your agents lose any previously granted authority.

Afterward, only a court-appointed guardian or conservator can make decisions for you.

Most types of power of attorney can be made durable.

Medical Power of Attorney (also known as an advance directive):

Allows you to name a healthcare agent who will make medical decisions if you cannot do so yourself.

Your agent has authority over a broad range of health care decisions, including medical treatment, surgical procedures,

artificial hydration and nutrition, organ donation, and choice of healthcare facilities.

Becomes effective immediately after you’ve signed it but can only be used if you’ve been declared mentally incompetent by a physician.

General Power of Attorney:

Grants your agent broad authority to act on your behalf in financial, business, real estate, and legal matters.

Examples of tasks covered by a general POA include managing banking transactions, buying and selling property, paying bills, and entering contracts.

It expires upon your incapacitation (unless it’s durable) or death.

Remember that each type of power of attorney serves a specific purpose and provides varying levels of authority to your agent. Depending on your needs, you may want to include multiple types in your estate plan.

LIMITED POWER OF ATTORNEY

A limited power of attorney (LPOA) is a legal document that grants an individual (the principal) the ability to assign a specific act or responsibility to someone else (the agent) for a temporary duration.

Here are the key points about LPOA:

Purpose and Duration:

LPOA is set up for a limited time frame and generally serves a specific purpose.

It becomes void after the designated action has been completed or on a specified date.

Common Uses:

Bank Accounts: Allows the agent to deposit, withdraw, and pay bills on the principal’s behalf.

Real Estate: Enables the agent to buy, sell, or manage property for the principal.

Retirement Benefits: Permits the agent to select different benefit options or withdraw funds.

Tax Filings: Authorizes the agent to file taxes on behalf of the principal or collect refunds.

Specific Responsibilities: For tasks like picking up a vehicle or handling mail.

Choosing an Agent:

Select someone you trust, often a family member or friend.

If the responsibility involves valuable assets, consider choosing a beneficiary from your estate.

Writing the LPOA:

Clearly define the agent’s responsibilities and terms.

Create at least two copies—one for each party involved.

Signing and Authorization:

If the LPOA falls under financial use, it must comply with state “durable” laws.

Typically, the form must be signed in front of a notary public, witnesses, or both.

Agent’s Role:

Whenever the agent acts on behalf of the principal, they must present the LPOA to the other party.

If signing documents, the agent should include the phrase “Acting as POA” below their signature.

Remember to keep the completed and signed limited power of attorney form in a safe and accessible place when not in use.

Highly recommend providing original documents to your financial institutions, insurance companies, and any other companies

that has your financials. 

The Successor Trustee

A Successor Trustee is the person responsible for administering and settling a Trust after the creator (called the Grantor) of the Trust dies.

The Successor Trustee also takes charge of the Trust if the Grantor becomes incapacitated or unable to make decisions.

1. Managing the Trust: The Successor Trustee oversees the Trust's affairs, ensuring that its terms and provisions are followed. They handle the Trust's assets, investments, and financial matters.

2. Distribution of Assets: The Successor Trustee is tasked with distributing the Trust's assets to the beneficiaries according to the Grantor's wishes. This involves transferring property titles, disbursing funds, and managing any ongoing income.

3. Beneficiary Consideration: The Successor Trustee must act with the beneficiaries' best interests in mind. They cannot make decisions solely for their own benefit unless explicitly specified in the Trust.

4. Tax and Financial Obligations: The Successor Trustee appraises the value of all Trust assets, pays any tax liabilities related to the Trust, and covers any expenses incurred during the administration of the Trust.

5. Life Insurance and Retirement Accounts: If the Trust is named as the beneficiary of life insurance policies, annuities, or retirement accounts, the Successor Trustee collects these proceeds and allocates them appropriately.

6. Coordination with Executor (if probate is necessary): If probate proceedings are required, the Successor Trustee collaborates with the Executor of the estate. They ensure a smooth transition between the Trust and the probate process.

7. Dealing with Creditors: Identifying creditors and paying off any debts owed by the Trust is another crucial responsibility of the Successor Trustee.

Remember that the specifics of the Successor Trustee's duties may vary based on the instructions left by the Grantor in the Trust document. It's a significant role that requires diligence and careful management of the Trust's assets and beneficiaries

Beneficiary 

A beneficiary is a person or entity that receives benefits, profits, or advantages from something. In legal contexts, there are a few specific scenarios where the term “beneficiary” is commonly used:

Estate Planning and Trusts:

In the context of trusts, a beneficiary is someone designated to receive the income or assets from an estate that is subject to a trust. This could be a living trust or a testamentary trust created in a will.

For example, if someone establishes a revocable living trust, they may initially serve as the trustee (the person managing the trust) but will eventually need a successor trustee (the successor to take over) after their death. The successor trustee ensures the trust’s administration and asset distribution according to the grantor’s wishes.

Life Insurance Policies and Contracts:

A beneficiary can also be named in various financial instruments, such as life insurance policies, annuities, or retirement accounts. When the policyholder or account owner passes away, the beneficiary receives the proceeds or benefits.

For instance, if someone designates their sibling as the sole beneficiary of their life insurance policy, the sibling will inherit the policy’s benefits upon the policyholder’s death.

Looking forward to helping you be prepared for life events!!

For Arizona use our notary services