Regularly, we have new clients come into our office stating they want a trust, because someone told them that is the best choice. Is a trust the best choice? The truth is that one is not clearly better in every case. As with most things in life, it depends. In this case, it depends on the client, their life choices, who & how they want to give their assets and the character of their assets.
Often people are frightened of probate, and this fear drives them towards a trust. Uncontested informal probates are a pretty straightforward administrative process in Arizona. The court is there, if it is needed. The documents are filed with the clerk and the Personal Representative never steps foot into the court. Trust Administration does not involve the courts, except when people are fighting. In both cases, if a party wants to fight or is unreasonable, misbehaves or challenges the actions of the Personal Representative or the Trustee, then you are in litigation and in court, whether there is a trust or a will. If no one is misbehaving or fighting, then a trust administration is cheaper than a probate, but you can’t predict how people will behave in the future.
A trust is more expensive to set up at the outset. It is analogous to a company. When you create a trust, it is a legal entity apart from the persons who established it. It can have its own tax id number (TIN), like a company. The trust can own property, have its own bank accounts, conduct business and vote its shares through its trustee(s) are just some examples of a trust acting as its own legal person.
A trust requires the Settlors (persons creating it) to work with it and stay on top of titling their assets into the name of the trust. Otherwise, what regularly happens is the trust is established, but there are assets outside of the trust, usually real property, held in a Settlor’s name. Now when the Settlor dies, those assets cannot transfer under the trust, as the trust doesn’t own them. Instead, a probate must be opened in order to transfer the real property under the terms of the Settlor’s will. Thus, if a client is not someone who likes details, is not likely to stay on top of keeping all their assets in the name of their trust or is not likely to come to their lawyer to help them, then a trust is not a good choice for that client.
There also seems to be a misperception that because the courts aren’t automatically involved with a trust, that trustees can act autonomously. There was some truth to that in the distant past. But in 2000 the Uniform Trust Code was established as best practices for trust administration (among other things) and Arizona adopted its trust code in 2009. Chapter 14 of the Arizona Revised Statutes deals solely with trust administration. California ’s most recent version is the 2015 Probate Code and Division 9 deals with Trust Administration. Almost all states have now adopted some form of a trust code. The days of the wild west of trust administration have been over for quite some time. Thus, if a non-professional trustee does not have legal guidance, they can easily run afoul of their relevant trust code and find themselves having to personally account in court, which means personal liability. If done correctly, the processes of probate and trust administration are roughly equivalent.
If the Settlor(s) don’t completely trust their choices for a non-professional trustee, then a will can be a better choice to ensure that their personal representative/executor is required to follow the rules of the probate process. A trustee can be forced to act by the beneficiaries, pursuant to the trust code, but the beneficiaries must know what the trustee has done in order to go into court to force compliance. It is not often easy for the beneficiaries to find out.
Some other considerations are:
- A will is filed with the court and public record, while a trust must be given to all income beneficiaries or current beneficiaries, but it is a private document – unless there is a court action.
- A trust can live on for many years; whereas, a will is more limited and once the debts are paid and assets accumulated, there is usually a prompt distribution to the heirs.
- A trust can provide the Settlors with more flexibility on how and when their beneficiaries will get money. A common example is that their children may only access their share of the trust for health and education needs until they are of an age the parents think is sufficiently mature (21-35 years of age).
- A trust can provide asset protection to the beneficiaries; whereas a will cannot.
- If a beneficiary is not good with money or doesn’t like to manage money, they can have a professional or non-professional trustee (depending on the terms of the trust) help them from making poor choices.
- If there is a disabled beneficiary, then a special needs trust can be most helpful to preserve assets for the disabled person and still allow them to obtain government benefits.
There are further considerations, but hopefully the above provides some food for thought whether a trust or will is better for you, and why I continually find myself saying to new clients, “it depends, but let me help you determine which is best for you”.
Disclaimer – This article is for information purposes only. It is not intended to provide legal advice to anyone. If you require advice, you should reach out to our firm or another lawfirm to discuss your facts and circumstances to obtain legal advice.
