1. WHAT IS A LIVING TRUST? -- A living trust is a contractual arrangement, called a "trust agreement", in which a property owner, called a "trustor(s), grantor(s) or settlor(s), transfers the property's legal title to a "trustee(s)" to currently manage the benefit of a beneficiary--as opposed to trust creation and after death management under the trustor's will, called a "testamentary trust".
   
   
2. HOW IS THE TRUST ESTATE COLLECTED? -- The trustor must transfer the legal title to the property to be added to the trust into the name of the current trustee (and that trustee's legal successors) so it is controlled by the trust.
   
   
3. CAN THE TRUSTEE-MANAGERS AND THE BENEFICIARIES BE THE SAME AS THE PROPERTY OWNERS? -- Yes! This is the most common type of living trust called a self-declaration of trust.
   
   
4. AFTER THE PROPERTY IS PLACED IN TRUST, DOES THE TRUSTOR STILL OWN THE TRUST PROPERTY AND CAN THE TRUSTOR ALTER, AMEND AND REVOKE THE TRUST? -- Yes, the Trustor continues to own the property in the trust and has the same power over the trust property as before the trustor set up the trust--this is called a revocable living trust.
   
   
5. AFTER THE TRUSTOR AS TRUSTEE DIES, WHO HANDLES THE TRUST? -- The trust is administered by a successor trustee who is named in the trust agreement to take over.
   
   
6. AFTER THE TRUSTOR DIES, HOW DOES THE TRUST PROPERTY GET DISTRIBUTED TO THE BENEFICIARIES? -- The successor trustee settles the trust estate and then pays the trust over to the beneficiaries named in the trust agreement.
   
   
   
   
7. WHY DO PEOPLE WANT TO SET UP A LIVING TRUST? -- A living trust is usually set up for at least one or more of the following reasons:
   
   a. Effective management--The trustor(s) has a larger estate and is looking for a more effective vehicle to manage it;
   
   b. Organization and Location of assets--Setting up the trust requires the trustor to examine all of the trustor's property and title and administer them within the trust estate which makes it easier for the trustor and successor trustee management;
   
   c. Probate court avoidance--Trust property is not subject to the trustor's last will and testament, thus does not have to go through the court probate process to save time and reduce administration expenses.
   
   d. Confidentiality--Unlike a will offered for probate, because there is no court administration a trust does not have to be filed with the court and thereafter become a public record.
   
   e. Continued property management for a minor or legally incapacitated adult--If the trustor has any minor or legally incapacitated adult beneficiary, the trust can manage the trust property for that beneficiary.
   
   f. Estate tax savings--For husband and wife trustors who have an estate valued over the estate exemption amount ($1 million for 2002 & 2003 and 1.5 million for 2004 & 2005 per person) then a so-called A/B trust can be set up to avoid estate taxes on 2 million (for 2002 & 2003 and 3 million for 2004 & 2005).
   
   
8. WHEN AM I A CANDIDATE FOR A LIVING TRUST? -- Any time your estate is not a small estate and could otherwise be benefited by any of the items mentioned in #7 above.
   
   
9. WHAT IS THE DISADVANTAGE OF A LIVING TRUST? -- For smaller estates a living trust may not be as advantageous because the cost, complexity and and the ongoing administration may not be economical.
   
   
10. WILL A SELF DECLARATION LIVING TRUST AFFECT THE TRUSTOR'S INCOME TAXES -- No! As long as the trustor has full ownership of all of the property in the trust (even if there is a different trustee) the trust income is taxed the same way as it would be out of trust and no special tax returns are needed.
    
    
11. HOW DOES THE A/B TRUST SAVE ON ESTATE TAXES? -- Currently, each person may make gifts during life and/or at death not exceeding $1 million (for 2002 & 2003) and 1.5 million for (2004 & 2005) and pay no estate tax. For married trustors establishing a living trust, this means that combined they may pass 2 million (for 2002 & 2003) and 3 million for (2004 & 2005) without paying estate tax. However, if for instance, in 2002 the first spouse to die leaves all of his or her $1 million property to the surviving spouse's $1 million property, then that deceased spouse has wasted his or her $1 million estate tax exemption and when the surviving spouse dies in 2003 with a $2 million taxable estate, the survivor can shield only $1 million, thus the survivor's estate is exposed to a $1 million estate tax liability. However, if the $1 million belonging to the first spouse to die is placed in a so-called "B" trust for the benefit of the surviving spouse, but in a form so it will not be taxed in the surviving spouse's ("A" trust) estate when he or she dies, then this tax can be avoided.
    
    
12. HOW DO I SET UP A TRUST? -- Contact a qualified estate planning attorney in the state of your residence to make a complete review of your family situation as well as your property (including a listing of the current value and title designations to those assets) to prepare a plan best suited to you.
    
    
13. CAN I SET UP A TRUST FOR THE SOLE PURPOSE OF HOLDING TITLE TO MY ARIZONA PROPERTY WITHOUT AFFECTING THE PROPERTY IN MY HOME? -- Yes! A simple real estate trust is available in Arizona to hold title to avoid an ancillary Arizona probate. Contact Matthew L. Howell, the Arizona Ancillary Probate Attorney. law@mlhowell.com

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