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Home Special Sections Wealth Management

TRUSTS NEED CAREFUL SETUP TO FOLLOW YOUR LAST WISHES

December 3, 2018
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by Andre Carman, Carman Law Firm

As part of the estate planning process, many people create revocable (aka living) trusts. Trusts can be used to avoid probate but only if they are funded before you pass away. Funding a trust is an oft-forgotten step in the estate-planning process. If not done correctly, or at all, then many of the purposes and expected benefits for which the trust was created could be lost. Chief among those is that avoiding probate may not be accomplished. Worse yet, your ultimate distribution plan may conflict.

To fund a trust, your assets need to be transferred to the trust. Accounts and real estate deeds need to be re-titled to the trust, and tangible personal property needs to be assigned to the trust.

Retirement accounts such as IRAs and 401(k)s cannot be in the name of the trust, but the trust can be a beneficiary of retirement accounts. To do so, however, the trust must be drafted carefully to comply with IRS tax regulations. Then, the trust can be listed as the primary or contingent beneficiary on a beneficiary designation form for the account.

In addition to problems caused by not funding your trust, your overall distribution can be frustrated if your trust conflicts with your beneficiary designations on your life insurance and bank, retirement and investment accounts. 

For example, what happens if your trust leaves everything to your children equally, but the life insurance beneficiary designation only names one of your children? Under Arizona law, what’s on the beneficiary designation controls. So, in this example, the child named on the life insurance beneficiary designation would get all of it. The same goes for anything with a beneficiary or transfer on death designation, such as bank accounts, retirement accounts, investment accounts, etc.

Similar conflicts can occur with real estate that is not titled (deeded) to the trust. Many buy their homes or other property and take title with their spouse as joint tenants or community property with right of survivorship (ROS).

The ROS designation allows the property to pass to the surviving spouse without going through probate. When the first spouse passes, some add a child to the deed as joint tenants with ROS with the thought this child will then sell the property at the parent’s death and divide it among all the siblings, which is what the trust says should happen.

Unfortunately, the parent’s wishes may not be accomplished in this scenario. The ROS designation on the deed means the one child inherits the property as her own and has no legal obligation to follow the terms of the trust.

Coordinating the funding of your trust with your overall estate distribution plan needs to be done with care. Your estate planning lawyer can only advise you properly if you give them the big picture, i.e., full disclosure of all your assets along with copies of deeds, titles and beneficiary designations.

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OUT & ABOUT — Thank you to Karen Shaw for sending in these shots of Jerome and the San Francisco Peaks on a beautiful winter day! We publish reader photos in every issue of Prescott LIVING. Send in your best shots by email to photos@roxco.com. Photos should be taken by you, anywhere in the Greater Prescott area. Selected photos will appear in print and on our social media channels.#jeromeaz #prescott #northernaz #sanfranciscopeaks ... See MoreSee Less

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Arizona State Senator Ken Bennett will read a proclamation in memory of Dr. Billie Orr on Wednesday, Feb. 1st at 1:15 p.m. on the Senate floor. The session will be livestreamed at www.azleg.gov/liveproceedings. Here is the text of the proclamation. . . . Recognition In Memory of Dr. Billie OrrWHEREAS, Dr. Billie Orr served the citizens of Prescott on the City Council from 2015 until 2021 and during that time as mayor Pro Tempore from 2017 until 2020; andWHEREAS, she was a member and past President of the Republican Women of Prescott; andWHEREAS, Dr. Billie Orr Founded the Mayor’s Commission on Well-Being for the City of Prescott; andWHEREAS, Dr. Billie Orr served as City Council Liaison for several City Boards and Commissions during her tenure as Councilmember; and WHEREAS, she served as a Board Member of Arizona Town Hall, Prescott Western Heritage Foundation and Yavapai Big Brothers Big Sisters; andWHEREAS, Dr. Billie Orr was an active Rotarian, serving on Rotary Clubs in the Phoenix area and in Prescott; and WHEREAS, she was a big fan of pickleball and helped Prescott Build outdoor courts for its citizens; andWHEREAS, prior to her service in Prescott, Dr. Billie Orr was active in Arizona education for more than twenty-five years; and WHEREAS, Dr. Billie Orr served the citizens of Arizona as Arizona’s Associate Superintendent of Public Instruction; andWHEREAS, under her leadership, Arizona created state academic standards that were ranked among the best in the nation; andWHEREAS, in earlier years she taught in the Madison District in Phoenix and was the Principal of Kiva School in Scottsdale; andWHEREAS, Dr. Billie Orr was a dedicated and longtime public servant to the citizens of Arizona who brought a positive and caring aspect to her service, inspiring many who worked with her; andWHEREAS, Dr. Billie Orr will be greatly missed by her many friends in Prescott and throughout Arizona; andNOW, THEREFORE BE IT RESOLVED, our heartfelt condolences and prayers go out to her husband Bob, their children and grandchildren and all family members.. . . ... See MoreSee Less

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