Wills and Trusts

Understanding WillsWills and Trusts Button

What is a will?
A will is a written document that directs the disposition of a person's property after his or her death. A will nominates one or more "personal representatives," sometimes also referred to as "executors," to manage and distribute the estate. A will can also nominate a person to serve as a guardian and/or a conservator for a minor child or incapacitated adult.

What happens if a person dies without leaving a will?
Any assets in his or her estate will be distributed according to Arizona laws that designate which family members, or "heirs," will receive assets.
 
Does a will affect all assets?
Assets for which you have set up a different method of transfer, such as beneficiary designations, payable on death (POD) accounts, transfer on death (TOD) accounts, joint tenancy with right of survivorship, community property with right of survivorship, and/or titled into the name of a Trustee, are not affected by a will. Remember to check whom you have named as beneficiary on any IRAs, annuities, life insurance and/or retirement plans. You can also name a beneficiary for your car, and record a beneficiary deed for real property. Assets with these kinds of transfer mechanisms automatically pass to the surviving owners or named beneficiaries.

Can a will be changed?
A will can be changed or revoked anytime before death. Often simple changes are made by an amendment called a "codicil."

What is probate?
Probate is the process of submitting a deceased individual's will to the court, appointing a personal representative and following through with the legal requirements to dispose of the person's assets.

Probate proceedings are governed by the law of the state where the deceased person maintained his or her legal residence at the time of death, and by the probate laws of any other state where real property was located at the time of death.

Does a person need a large estate to have a will?
No. Any person wishing to designate who will receive their assets at death should have a will. Individuals with minor children will want a will to nominate a guardian and to manage the assets for the minor children in a trust (which may be created under the will) and/or a custodial account.

Who should draft a will?
Ideally a lawyer should draft a will. Only an expert legal professional can advise the best alternatives with respect to an individual's estate plan.

What is a holographic will?
A holographic will is hand-written by the person making the will and needs to be signed by that person. Although a date is not required, it is recommended so that the last will of that person can be determined.

Understanding Trusts

What is a living trust?
A living trust, or revocable trust, is an estate-planning arrangement under which a trustee (which can be one or more individuals and/or a bank) takes title to the assets of the original owner (the "settlor"). In most cases, the settlor is also the initial trustee. The terms of the document designate who will take over as trustee when the initial trustee is no longer willing and able to act. The settlor is often the only beneficiary during his/her life.

What are the advantages of trusts?
• Cost savings. Avoiding probate can save substantial fees and costs.
• Incapacity management. Named trustees can manage assets for a settlor's benefit if he or she is incapacitated, avoiding the need for a court-appointed conservator.
• Tax savings. A trust arrangement can reduce estate taxes for a married couple in certain situations. Ask a lawyer for more information.
• Beneficiary protection. Setting up a continuing trust arrangement in either a will or a revocable trust can protect beneficiaries who are too young or otherwise unsuitable to receive all of their inheritance outright in a lump sum.

How do I obtain a will or trust?
Consult with a lawyer experienced in estate planning to determine which estate-planning options are best for you. Using the services of someone not trained in estate planning can end up costing more money to fix problems.

In discussing an estate plan with a lawyer, make sure to speak openly and honestly about all of your assets. The person preparing your plan cannot determine your needs without knowing your circumstances.

To check the status and disciplinary history of a lawyer, look at the Find a Lawyer feature on azbar.org (which will include most discipline), or call the State Bar of Arizona at 602.340.7239. If you think you have been misinformed about living trusts, contact the Office of the Arizona Attorney General Fraud Line at 602.542.5763, or the Better Business Bureau at 602.264.1721.

Myths and Facts

Myth: Probate costs and attorney fees are usually as high as 10% of your estate.
Fact: Arizona court costs to open a probate are very modest. In addition, Arizona lawyers may charge only reasonable fees for necessary services, not percentage fees. Fees may increase in the event of tax issues, disputed creditor claims, or other litigation, but these same issues can arise with a trust.

Myth: In probate, assets are not distributed for several years.
Fact: An informal probate procedure can start as early as five days after death, and distribution can occur as soon as it is clear there are sufficient assets to pay expenses, creditors and taxes. Creditors have up to four months to submit claims and the personal representative may, but need not, delay distribution until the end of the creditors' claim period. A trustee may also have to delay distribution to pay taxes or divide property. An improperly prepared or funded trust may require money and time to correct before distribution can be carried out.

Myth: Probate forces the liquidation of your assets.
Fact: Liquidating assets is necessary only to pay expenses, creditors, taxes, or to make distributions to beneficiaries. A trust is not a guarantee against such liquidation for the same purposes.

Myth: Probate litigation is more expensive than trust litigation.
Fact: Unhappy family members or beneficiaries can challenge both wills and trusts. A trust is not a guarantee against litigation. Expenses will depend on the nature of the litigation.

Myth: A trust will avoid federal estate taxes.
Fact: A will or trust that provides for a "credit shelter trust" arrangement can reduce estate taxes for married couples who have combined assets over the federal estate tax exemption. A trust in and of itself does not reduce estate taxes at an individual's death, nor does a will.

Myth: Probate proceedings are complex and require special court approval.
Fact: In Arizona, most estates use informal probate procedures that do not require formal court approval. In many cases, personal appearance in court is not required.