Estate Plan Privacy

Perhaps one of the most overlooked aspects of a revocable "living" trust is the privacy that it can provide.

If you're not familiar the concept of  a living trust, it is a legal document often used in estate planning, either in conjunction with, or instead of, a will to more efficiently administer of a person's or couple's estate by avoiding a judicial proceeding called probate. Although probate is not necessarily a bad thing, there are some drawbacks to it.

Probate

During probate, a decedent's will — if any — is validated and one or more persons are appointed by the court to administer the estate by gathering the assets of the estate, paying off the estate's creditors, and then distributing the estate's remaining assets pursuant to the terms of the decedent's will. Because probate s a judicial proceeding, the particular assets owned by the estate are publicly disclosed in court filings.

Revocable “Living” Trust

In stark contrast to probate, a properly-funded living trust can avoid probate and the disclosures of the estate's assets required by probate law. But in order to understand how this is possible, we need to describe the concept of trusts and living trusts.

A trust is both a document and relationship whereby one or more persons — called trustees — hold legal title to property for the benefit of others — called beneficiaries. In the context of a living trust, the trustees and the beneficiaries are often the same people, at least initially, until the original trustee or trustees pass away, at which point one or more successor trustees are authorized to administer the trust. Unlike probate, a court is not required to appoint and empower the successor trustees, rather, this happens automatically pursuant to the terms of the trust. It's important to note, that successor trustees are often family members who may be beneficiaries of the trust, though successor trustee can be other disinterested people or corporations. Generally, the cost of having a corporate trustee as a successor trustee is very significant and cost prohibitive for most people.

Trust Administration

The administration of a trust after the death or deaths of the original trustees can often be quite simple, requiring only the outright distribution of trust assets to the trust beneficiaries, followed by the termination of the trust. People often choose for this to occur if they aren't concerned about their beneficiaries wasting the money receive from the trust or aren't concerned about creditors of the beneficiaries.

However, the trust administration can involve keeping the assets in the trust for a specific period of time or in perpetuity if there are concerns about creditors of the beneficiaries or the beneficiaries wasting the money they receive.

Asset Ownership

In order for a living trust to avoid probate, the people who set up the trust must transfer the ownership of many, if not most, of their assets to the trust, keeping in mind that because they are both the trustees and the beneficiaries of the trust, they can generally do as they please with the assets, while they are both alive. Further, because a living trust is revocable, the original trustees can likely remove assets from the trust as they wish during their lifetimes.

In addition, people sometimes choose to make their living trusts the beneficiaries of their federally-governed retirement plans, such as 401(K) or profit-sharing plan, if they want those assets to be subject to the trust provisions. Keep in mind, that the distribution requirements of such retirement plans are different for trusts than for individuals.

Although ownership of most of a person's or couple's assets should be transferred to a living trust in order to avoid probate, a pour-over will can sometimes transfer assets not owned by the trust into the trust and still avoid probate. In Arizona, a pour-over will can avoid probate if the value of the personal property not owned by the trust is less than $75,000 and/or the value of the real property not owned by the trust is less than $100,000.

Privacy

As mentioned above, because a living trust does not require probate, the administration of the trust does not require public disclosure of the trust assets. That being said, real property owned by the trust is generally public record in Arizona. Although not important to everyone, the lack of public disclosure that trusts can provide is potentially a very compelling reason for some people to use a revocable living trust in their estate planning as opposed to a will.

This brief overview of some important considerations associated with estate planning in Arizona is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.

Arizona Estate Planning AttorneySteve Cook is a Mesa, Arizona probate attorney at Cook & Cook. Although his office is located in Mesa, Arizona, he represents clients throughout the Phoenix, Arizona Metropolitan area including the following east valley cities: Scottsdale, Paradise Valley, Tempe, Chandler, & Gilbert.

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