How Trusts Interact with Arizona’s Homestead Exemption

Many people choose to manage and protect assets such as their primary residences by placing the property in a revocable trust. However, Arizona homeowners who consider putting their home in a trust may not be aware of how doing so may impact their right to an Arizona homestead exemption.

 

 

Understanding Arizona’s Homestead Exemptions

Arizona’s homestead exemption allows property owners to protect a significant portion of equity in their primary residence, such as a house, condominium, or mobile home (and with the land it occupies), from certain creditors. The amount is adjusted annually for inflation.

The homestead exemption can automatically attach to the cash proceeds from the voluntary or involuntary sale of the property, remaining in effect for up to 18 months or until a person establishes a new homestead with the cash proceeds, whichever occurs first.

An Arizona homeowner may abandon their homestead by making a written declaration of abandonment, transferring the homestead property through a deed or contract for conveyance, or relocating their domicile to another residence.

Revocable Living Trusts and the Homestead Exemption

Although transferring a residence protected by the Arizona homestead exemption typically results in the abandonment of the exemption, state law provides an exception to this rule for a conveyance of the homestead property to a revocable trust. This exception applies when the property owner retains the power to administer and revoke the trust.

Other Trusts and the Homestead Exemption

Property owners may put their primary homes into other types of trusts for various financial and estate planning purposes. Other types of trusts include:

• Irrevocable trusts – You may put your home in an irrevocable trust for tax mitigation or asset protection, as property in an irrevocable trust protects your estate so that creditors cannot reach the asset. However, the irrevocable nature of the trust also means that you cannot recover the property.
• Home Equity Protection Trusts (HEPT) – An HEPT is a specific type of irrevocable trust that can protect your home equity from future unknown creditors. The trust gives you an exclusive right to occupy your home without restriction and may name other parties, such as your children, to receive the proceeds of a sale of the property.
• Medicaid Asset Protection Trust (MAPT) – Individuals and couples may place their homes in a MAPT to fall below the maximum asset thresholds to qualify for Medicaid benefits for long-term care.

Can AZ Homeowners Transfer Property in Trust and Keep the Homestead Exemption?

AZ homestead laws allow homeowners to put their primary residence in a revocable trust as part of their estate plan without jeopardizing their right to a homestead exemption. This rule makes revocable trusts a smart estate planning tool for protecting your home while preserving the exemption. Consulting with an experienced attorney can help you determine whether establishing a revocable trust in Arizona aligns with your financial and estate planning needs and goals.

Talk to Our Arizona Living Trust Attorney

Before placing property in a trust, consult an experienced living trust lawyer to understand how it could affect your eligibility for Arizona’s homestead exemption. Contact Pennington Law, PLLC today for a free consultation to discuss developing an estate plan that provides asset protection and peace of mind in your later years.