In Arizona, a trust serves as a legal vehicle that holds your assets and allows a trustee to manage them. Trusts come in many varieties and provide benefits such as tax planning, asset protection and ongoing financial management for beneficiaries. Whatever financial situation you want to accommodate for your heirs, you can likely set up a trust that meets your needs.
Revocable and Irrevocable Trusts
An important way to separate trusts is whether you need a revocable (living) or irrevocable trust. You can change a revocable trust during your lifetime and move assets in and out at any time. However, you remain the owner of the assets, so bankruptcy or litigation can put your assets at risk.
Conversely, if you use an irrevocable trust, you must transfer ownership of the assets from you to the trust. You cannot change the trust once its established, so you should seek professional guidance when setting it up. However, since you no longer own the assets, the assets are protected from lawsuits and creditors.
Other Types of Trusts
You can dictate unique characteristics such as a special needs trust, which keeps the money for a special needs child out of their legal name so they can retain government benefits. You could set up a charitable remainder trust to provide income for beneficiaries within certain guidelines and direct specific charities to receive the remainder.
Determining why you want a trust can guide which type to choose. You might want to protect assets from an incompetent beneficiary or shield personal assets if your business declares bankruptcy. You can provide a monthly income for your adult children instead of handing over a lump sum or provide funds for your trustee to pay for your under-age children’s education, healthcare or upbringing.
A Trust Provides Control
By setting up a trust, you can determine when your beneficiaries can access the assets, which helps if your heirs are not yet legal adults or do not have financial discipline. You can also direct assets to specific beneficiaries, which provides clarity and security when a family involves ex-spouses and step-children.
In many cases, assets in a trust receive protection from divorce, creditors and litigation. You can keep your financial affairs private by using a trust, and your heirs will not have to spend part of their inheritance paying costly court fees and, in some cases, estate taxes. Finally, assets placed in a trust do not go through probate, meaning the beneficiaries can immediately receive the proceeds.
A trust can become integral to your estate plan and help carry out your financial wishes.