Different Types of Trusts in Arizona

Over the years, more Americans are recognizing the value and benefits associated with establishing a trust when planning the future of their estate. Choosing to establish a trust rather than draft a will is known to be more efficient financially since it avoids probate, it allows the assets of the estate and the conditions of the trust to remain private and protected from the public eye and ultimately allows the grantor to make changes and adjustments to their trust while they are still alive. There are two distinct types of trusts, revocable and irrevocable, each with their own conditions and unique benefits. Because each individual is unique, as are their estates, choosing between the two trusts varies case to case. Here is an overview of the two along with the advantages and disadvantages to each.

A revocable trust, also known as a living trust, is an agreement which can be altered or canceled at any time during the life of the grantor should they choose to do so. During the life of the trust, any income from the estate is distributed to the individual who established the trust. Many prefer living trusts for their flexibility and ability to change the provisions of the trust. This option becomes favorable should family relationships be severed or life circumstances change that would merit the alteration of recipients or amount of the estate. A living trust accommodates growth or minimization of the estates they cover. This option allows the grantors who own the estate to exert power over their assets while they are still living and plan for their departure at the same time.


Different Types of Trusts in Arizona | Your Other Options

On the flip side, an irrevocable trust is essentially the opposite of the above mentioned living trust. Under this option, the owner of the estate does not have the ability to modify or terminate the trust without the express permission of the stated beneficiaries. This drawback is outweighed for many by the tax benefits that accompany irrevocable trusts. Because the trust effectively removes legal ownership of the estate from the grantor, the amount of taxable assets is reduced by however much is included in the trust. Many individuals fail to realize that when they sign up for life insurance, the amount that the policy covers is included in their taxable estate. This means that the proceeds from the policy are subject to the same taxes as the estate upon the death of the insurance holder.

When the individual under the policy dies, the proceeds from the policy will be added to the taxable estate of their family member. An irrevocable trust removes ownership of those proceeds from the individual under the coverage and includes them under the trust. In the end, because the insurance proceeds through the trust and not as a direct payment, the recipient will not be taxed for the amount received from the policy either because it is neither under the estate owned by the grantor nor is it included in the recipient’s taxable estate. While irrevocable trusts do not give the grantor as much flexibility, the result is extremely cost efficient which is why many choose to place their estate under an irrevocable insurance trust.

Choosing what to do with your estate can be daunting. Having to consider the future and what it may bring is not an enjoyable task for anyone. It is important that you are aware and educated about all of the options available when planning the future of your estate.