What You Should Know About Living Trust Problems in Arizona
Revocable living trusts are among the most popular and effective estate planning tools. Depending on your circumstances, setting up a revocable living trust could provide a number of advantages. At the same time, revocable living trusts have some drawbacks and limitations. A living trust is not necessarily the right estate planning tool for every person or situation. If you or your loved one is considering setting up a revocable living trust in Arizona, it is important that you have a basic understanding of these potential advantages and drawbacks.
In this article, our Phoenix estate planning lawyers at Mushkatel, Gobbato, & Kile, P.L.L.C. provide an overview of five potential disadvantages associated with revocable living trusts in Arizona:
- Initial Expenses
As a starting point, one of the disadvantages of using a trust to pass on assets is that the initial cost is somewhat higher than other options. Simply put, it costs money to set up a trust, and it costs money to administer a trust. Certainly, in many cases, this is money well spent. However, if you are not prepared to put a considerable amount of assets into the trust, it may not be worth the costs. Similarly, if the benefits of setting up a revocable living trust — primarily, avoiding probate — are not especially useful to you, then initial costs may outweigh the value of the trust. - The Paperwork
A revocable living trust is a relatively straightforward estate planning tool. Still, a considerable amount of paperwork can be associated with creating one. Trust documents must be properly drafted. Even minor mistakes could cause serious headaches down the road. Notably, assets and property must be properly re-titled before they can be protected by a living trust. With certain complex property such as real estate holdings, re-titling the asset can be somewhat time-consuming. Some important, potentially complicated paperwork may be involved. For this and other reasons, a revocable living trust should always be created with guidance from an experienced estate planning attorney. - Lack of Tax Advantages
Some people incorrectly believe that tax advantages are associated with setting up a revocable living trust. This is not the case. A revocable living trust offers few tax advantages. You will be unable to avoid taxes simply by putting property or assets into a trust. Any income created by assets held in a trust is still taxable income. As the Internal Revenue Service (IRS) explains, a revocable living trust is typically identified by the grantor’s Social Security number. So, as a general rule, you will report any income generated by the property contained in the living trust on your individual income tax return. The lack of tax advantages may be a drawback because, in some cases, other estate planning options may better protect your financial interests. - Troublesome Beneficiaries
When you set up a revocable living trust in Arizona, you are required to name your beneficiaries. Who should you select as your beneficiary? How many beneficiaries can you name? It is entirely up to you. One of the advantages of revocable living trusts is that they are inherently flexible. You can select the beneficiaries that you want, and you can change them at will. Of course, this advantage comes with its potential downsides. Dealing with the beneficiaries can be troublesome if you have a large number of beneficiaries, or if some or all of them are children. The more complex your estate, the more an estate planning lawyer can help you. - Limited Protection Against Creditors
An underappreciated area of estate planning is dealing with creditors. As the AARP notes, almost everyone passes away with at least some level of debt. Invariably, creditors will take action by seeking to recover that debt against the estate. A revocable living trust offers limited protection against creditor claims. In fact, a revocable living trust offers less protection than does the Arizona probate process. For many people, this issue is not a significant concern. However, if you are worried about creditors going after a substantial share of your estate, and you want to maximize your protection, setting up a revocable living trust may not be the right choice for you.
How an Arizona Estate Planning Lawyer Can Help You
The estate planning attorneys at Mushkatel, Gobbato, & Kile, P.L.L.C. always take the time and energy to listen to our clients. By fully understanding our clients’ situation, concerns and goals, we can find the right solutions for them. No matter what your circumstances are, our attorneys will be prepared to help you to craft a fully personalized estate plan that is designed to protect you and your loved ones.
Establishing a revocable living trust may be the most effective estate planning option for your situation. If so, we will help you to put one into place. Of course, for you and your family, the drawbacks of a living trust may outweigh the benefits. If that is the case, our legal team will be ready to assist you in determining which other strategies and estate planning tools are the best ones to protect your rights and financial interests and carry out your wishes.
Get Help from Our Phoenix, AZ Estate Planning Attorneys Today
At Mushkatel, Gobbato, & Kile, P.L.L.C., our estate planning lawyers are committed to providing effective and fully personalized legal guidance to our clients in Arizona. If you have questions about revocable living trusts or any other estate planning matter, we are here to provide answers and to help you to achieve your objectives.
To receive a free and strictly confidential initial consultation, contact us today. We represent clients throughout Maricopa County, including Phoenix, Scottsdale, Tempe, Mesa, Glendale, Avondale, Peoria and Litchfield Park.
About the Author
Zachary Mushkatel discovered his affinity for the law by chance. As a political science major at the University of Arizona, he first aspired to become a professor. But an unexpected invitation to participate on a mock trial team at the university encouraged him to turn his competitive spirit and drive…
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