Trusts: Family Trusts, Living Trusts, and Revocable Trusts

Two of the most common questions that I hear are:

1.  What is the difference between Family Trusts, Living Trusts, and Revocable Trusts?

           2.  Are Family Trusts, Living Trusts, and Revocable Trusts different?

In most cases, all of these Trusts are one in the same.  They are a legal document created for a family or person which is used to hold and manage their property during their lives and transfer that same property according to their direction after their deaths.  In addition, they are all also legal documents capable of being changed, amended, or revoked at any time.  Thus they are:

Therefore, in most cases, when someone has any one of these types of Trusts, chances are that they actually have all three at the same time.

In general, a Trust is an instrument where the property of one party is held in benefit for another.   In layman terms, a person places their property in the possession of a “Trust” (legally recognized holding entity) so that when they die, that property can then be distributed to their children or other place (charity, friends, family, etc.) without the hassle and complications of going to court.

In many cases, if a person has only a Last Will and Testament it is likely that their estate will end up in Court.  However, in the case of a Trust, because certain legal guidelines are met prior to the Trust Creators death, the property that belongs to the Trust will actually avoid Court.

With that being said, a person may ask “what legal guidelines will affect my Trust?” However, though the question is simple, the answer is fairly complicated.

In brief, each and every Trust is different for every family.  This is because every family has different property, different objectives, and they are at different stages in their lives.  Thus, when considering your estate plan, it is imperative that you consult with a knowledgeable and experienced attorney who can analyze your estate, compare your property and objectives with Arizona law, and then effectively draft your Trust so that it is tailored to meet your goals and objectives but yet still meet the legal requirements to bypass the court system upon your death.

A few tips for your meeting with your attorney are:

• Be certain to ask your attorney to explain the Trust Funding process to you.  Trust Funding is the process of placing your all of your belongings, assets, and property in the control of the Trust.  THIS PROCESS HAS DIFFERENT REQUIREMENTS FOR EVERY TRUST.

• Be certain to ask your attorney what parts of the Trust Funding process you will be responsible for and what parts they will be taking care of.  In most cases the attorney should assist you directly in getting your home and any other Real Property or Land placed in the Trust.  Your Attorney should also be directly involved in the transfer of any Business interests which you own to the Trust.  However, when it comes to your bank and financial accounts, vehicles, annuities, life insurance, and other investments, the attorney will instead provide you with detailed instructions on how to properly fund the trust with those assets.

• BE CERTAIN THAT YOUR TRUST IS FUNDED.  As explained in the previous bullet, Trust Funding is a crucial step to the creation of a Trust.  The top estate planning mistake of trust creation is the fact that many trusts are never funded with all or even any of the estate assets.  Thus, “the Trust looks great on paper” but it serves no legal purpose what so ever and the property ends up in Probate Court.  Therefore, make sure that you speak about Trust Funding with your attorney and that they provide you with the proper legal direction which you need.

• If your family has special needs due to Illness or Disability, be certain to share this with your attorney.  Special provisions will be needed in your trust to protect your assets in the event that either you or your spouses care due to those illnesses becomes costly.  Likewise, if one of your children is already disabled, it becomes especially important to plan effectively for your trust estate and steer your assets away from that child so that your assets do not disqualify them from their care programs which they already receive.  BE CERTAIN THAT YOUR ATTORNEY UNDERSTANDS THESE CONCEPTS BEFORE YOU RETAIN THEM TO HANDLE THE DRAFTING OF YOUR TRUST.

• Be cautious of attorneys and firms which use “Cookie Cutter” Trusts where your names (John, Mary, etc.) are simply inserted into the same document which has been generated by a computer and used countless times, for countless people, in countless states.  YOU ARE UNIQUE, YOUR ESTATE IS UNIQUE, AND ARIZONA LAWS ARE UNIQUE – ONE SIZE DOES NOT FIT ALL AND YOUR TRUST MUST BE TAILORED TO MEET YOUR INDIVIDUAL ESTATE NEEDS, otherwise, your estate may end up in Probate even though you paid someone a lot of money to avoid that.

• Similar to “Cookie Cutter” trusts, you also need to be cautious of websites like “Legal Zume” or other Trust generating software sites.  These sites are set up in States outside of Arizona and further they are set-up to be functional in the entire United States (all 50 States).  Therefore many times these Trusts contain many provisions and legal language which are not relevant to the State of Arizona, while they simultaneously omit numerous provisions which are VERY relevant in our state.  So why do people use them?  The number one reason is: They are less expensive than going through an experienced Estate Planning attorney.  While this is true, is less expensive going to be effective in keeping your estate out of Probate Court?  And, do you really want to risk your estate (worth thousands, tens-of-thousands, or even hundreds-of-thousands of dollars) going to Probate Court because you tried to save a few dollars and used an internet “one-size-fits-all” software program to draft you Trust?  Absolutely not.

Be cautious of attorneys who dabble in Trusts, Paralegals who prepare and execute Trusts, and Legal Document Preparers.  Trust law is complicated and ever changing.  It requires time and attention to stay on top of the current property, estate, and tax laws. Attorneys who “dabble” do not understand.  Paralegals and Legal Document preparers cannot give you any legal advice in the State of Arizona as they are prohibited by Arizona Law from doing so.  Therefore, between “Dabbling Attorneys,” “Paralegals,” and “Legal Document Preparers” you fill out their questionnaire and they issue you a “Cookie Cutter” Trust generated from software.  In most cases they do not understand the law and if they are a Paralegal or Legal Document Preparer, they cannot teach you or explain to you the law.  Thus, in the end and when they are through, they cannot even tell you if you have received what you need. (One reason they may not know, the other reason, even if they do know, the law prohibits them from telling you.  Ever heard the old adage “Trust Me.”  It takes on a whole new meaning in this scenario.)

THE BOTTOM LINE IS, TRUSTS ARE SERIOUS AND THEY SERVE A SERIOUS PURPOSE.  DO NOT TRUST YOUR ESTATE TO A GENERIC DOCUMENT PREPARED BY AN INCOMPETENT INDIVIDUAL, WHETHER THEY ARE AN ATTORNEY OR NOT.  INSTEAD SEEK OUT AN EXPERIENCED ATTORNEY WHO UNDERSTANDS THE LAW AND CAN APPLY IT TO YOUR ESTATE.  As dad always said “Do it right the first time or don’t do it at all!”

As a last note, often times estate planning attorneys will visit with you about your estate in a free consultation. A person shouldn’t have to pay to understand how Arizona Law will impact their estate.

This office ALWAYS does a free consultation regarding your estate to help you understand and determine if only a Last Will is sufficient for you, or if you need a Revocable Trust.