Paul B. Bartlett, P.C.
Trusts & Wills
ALTCS - Medicaid
Guardian & Conservator
Lawyers - Tucson, Arizona

Trusts in Arizona | Will or Trust?

What is a Trust?

A trust is a set of instructions to a Trustee contained in a legally enforceable document. The instructions typically deal with the following issues:

  • Will I act as trustee for myself?

  • Who will become my trustee if I can no longer be trustee?

  • How are my assets to be used?

  • Will the trust end when I die?

  • If my trust does not end, whom to distribute money to and at what pace?

  • How is the trust going to distribute income or assets to a person with special needs?

  • Who gets my trust assets when the trust ends?

  • Who is going to be my trustee and my successor trustees?

  • What debts and taxes are to be paid from my trust?

  • What powers do my trustees have?

  • How are my assets to be invested?

Should I do a trust or a Will?

Do not do a trust because you are afraid of a probate.  Probate is a relatively simple and painless procedure in Arizona.

Do a trust:

  • if you own land in more than one state because of the high cost of doing a probate in each state

  • if you are leaving assets to a beneficiary who will squander them if he receives them outright

  • if you are leaving assets to a person who is receiving public benefits and who might lose those benefits, like SSI or ALTCS, if you leave funds to them outright

  • if you believe that a Trustee should stand in between your intended beneficiary and people who would charm or defraud that beneficiary out of his trust money

  • if you want to give a beneficiary income for life and you want to protect that income from creditors

  • if you want to plan effectively for the possibility of your own disability and you desire the accountability and the efficiency of a Trustee

If I do a trust, do I still need a Will?

Most people who set up a Trust during their lifetime (hence the term "Living Trust") do so to avoid probate. The Trust succeeds in avoiding probate only if all otherwise probatable assets are retitled in the name of the Trustee of the Trust. Sometimes people establish a living Trust but don't get around to retitling all the assets into the Trust before they die. Sometimes they become incapacitated as the result of an accident and they then receive settlement proceeds which are probatable. So in order to put the Trustee in control of how assets move after death, one does a Will leaving all assets to the Trustee of the Living Trust. Such a Will is called a "Pour-Over Will" because it pours over into the Trust.

If I do a trust, do I still need a Durable Financial Power of Attorney?

  • There is no law that says people have to do business with the Agent under your Power of Attorney. But because your trustee becomes the legal owner of your property, they have to deal with your trustee.

  • Powers of Attorney don't usually contain provisions requiring the Agent to give you a periodic accounting of your financial affairs.

  • The Agent under a Power of Attorney cannot make decisions after your death, but a Trustee can.

Even so, it is still a good idea for you to do some kind of financial power of attorney. Why? Because there may be a need to move property out of your individual name and into the name of your trust while you are disabled.

It is also true that there are some assets that you own that do not go into your trust. An example is an Individual Retirement Account (IRA) which by law cannot be owned by your trust. Therefore, if you become disabled, the power of attorney would make decisions about investing money in the IRA or withdrawing money from the IRA.

Whom should I select to be my Trustee?

  • A trustee often has full and unrestricted access to your trust assets. An unscrupulous trustee can steal them. So you need to pick someone you can trust not to steal.

  • A trustee has to invest the trust assets. Your trustee should be knowledgeable about investing, or at least be willing to obtain competent advice.

  • A trustee needs to be able to resist the temptation to invest in high risk investments.

  • A trustee needs to avoid self-dealing and conflict of interest..

  • A trustee needs to know how to say "No" to the unreasonable and unlawful demands of beneficiaries, and creditors.

  • A trustee needs to be sufficiently well organized to be able to account completely for all the affairs of the trust.

  • A trustee needs to have the time, energy and interest to give consideration to the individual needs of the trust beneficiaries.

  • An individual acting as a trustee may be judgment proof. An institution like a trust company or a bank trust department may be better able to satisfy a judgment against a trustee.

Should my Trustee be bonded?

Corporate trustees rarely operate under a bond. If you are selecting an individual trust, you may afford the trust beneficiaries an added degree of protection by requiring that the trustee purchase a surety bond. They are readily available, but seldom used.

What are the differences between a revocable trust and an irrevocable trust?

A person who sets up a trust is called either a Grantor, or a Settlor or a Trustor. Let's use the term Grantor. In a revocable trust, the Grantor retains the right to revoke or amend the trust. The Grantor does not part with the incidents of ownership of the property that he has put into the trust. He is considered the "equitable owner" of the trust assets, despite the fact that the Trustee is considered the legal owner of the assets. For tax purposes, a person who has established a revocable trust has not given away the ownership of the property in the trust to anyone else.

In an irrevocable trust, the Grantor cannot revoke. The Grantor has parted with the incidents of ownership of the assets of the trust. He has no right to have the assets returned to his individual ownership. He is not considered the "equitable owner" of the assets. For tax purposes, a person who has established an irrevocable trust has given away the ownership of the property, unless other factors are present.

Does a trust put my assets out of reach of the nursing home or Medicaid?

A simple, garden variety revocable living trust does not make the assets contained in the trust any less vulnerable to the cost of long term care.

Making a gift to an irrevocable trust which returns income to the Grantor may put the assets out of reach for ALTCS/Medicaid eligibility purposes, however, the making of the gift will result in certain eligibility penalties. See the Long Term Care Page

Can a trust be a valuable Medicaid planning tool?

In the case of a married couple with liquid assets less than $240,000 and a house, a revocable living trust can dramatically increase the amount that the community spouse can retain as the nursing home spouse qualifies for ALTCS. A qualified Medicaid planning attorney has to explain how this favorable outcome is obtained. See Medicaid Trusts

An irrevocable trust which is designed to return all its income to the people making the trust can result in assets passing free of an ALTCS estate recovery claim. Such a trust can also preserve some important tax benefits for the transferees of the property.

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