Wills VS. Trusts, The Basics

Last Will & Testament

A written document that is signed and witnessed. It is effective only upon death and can be changed until then. A Will:

• Distributes assets owned by you, except for asset that transfer via beneficiary designations (life insurance, IRAs, 401k, annuities)
  • If your beneficiary designations are incomplete, then your Will should take over
• Requires Probate court proceedings in Arizona if your individual property exceeds:
  • $100,000 in net value (equity) for all real estate; or
  • $75,000 in value for all personal property (everything else)
• Can appoint permanent guardians for your young children
• Names who settles your estate (executor / personal representative) subject to probate court approval
• Generally cannot protect assets for beneficiaries nor save taxes
• Lower cost than a trust, initially, but expensive to settle because probate court proceedings are required

Trust

A trust is a signed legal document, and is a special contract that has three parties:

1. Grantor: creates and funds a trust
2. Trustee: holder and manager of trust property, for the benefit the Beneficiary
3. Beneficiary: one who benefits from trust property without personal ownership

You can be all three of these parties as long as you are alive and well.  Your trust is effective during life, including disability, and is effective after death.  It is changeable and revocable during your life and…

• Provides benefits to you during your life
• Says WHO receives your stuff when you die
• Says HOW they receive your stuff, reflecting your values, goals, & priorities
• Avoids probate if correctly funded
• Provides for a successor trustee to privately follow your wishes upon your death
• Allows for management of assets during disability
• Can appoint a guardian for your young children upon incapacity
• Can live many years beyond death, protecting and investing assets for your loved ones
• Can minimize or avoid taxes
• Costs more than a simple will, initially, but much less upon administration (avoids probate)

Probate – A Key Factor in “Will vs. Trust”

Probate – Means “Proving”, and includes:

• A court-supervised process where a Will is authenticated
• Approval of your chosen Personal Representative (Executor)
• Verifies that legitimate debts are paid
• Verifies that assets are transferred to beneficiaries
• Sets deadlines after which creditors can no longer collect debts from the estate

The downsides:

• Slow – 6-9 months under ideal conditions in Arizona, but can take years
• Expensive – $3-6 thousand for routine uncontested proceedings (legal, court and other fees). Contested probates escalate to tens (or hundreds) of thousands
• Public Record – your nosey neighbor and the financial predator can get copies of probate documents and see who gets what and how to contact them.