Articles Posted in Trusts

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Arizona is a community property state. “Community property” is a term that  refers to how the property, during a marriage, is viewed in the eyes of the courts. In community property states all property accumulated by a husband and wife during their marriage becomes joint property. In plain terms, this means that all property belongs to both husband and wife equally if it was acquired during the marriage. Even if it was originally acquired in the name of only one partner.

Conversely, all property acquired before marriage, or through a gift or inheritance during marriage, is presumed to be the sole and separate property of the spouse who has acquired the property.  As with anything in law, there are exceptions, but this is the general rule.

The character of property as community or sole & separate can be important.  For example, if spouses divorce, each will retain his or her sole and separate property just as if they had never been married.  Any community property will be divided equitably. Equitably does not always mean equally. However, an “equitable” division of assets means a fair division.

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So, you made it your New Year’s resolution to get your ESTATE PLANNING needs addressed. You’ve got a young family, you are healthy, and you and your spouse are starting to accrue some assets. Here are some important things to consider to protect those assets and plan for your family’s future:

WILL or TRUST – You should consider putting together a WILL or a TRUST to indicate what you want to happen with your property at your death. Nobody likes to talk about death, but it is a reality that unexpected things happen. With a family, you need to consider this possibility and plan for it. Beyond how your assets would be distributed, your WILL can name a person to take over as the GUARDIAN or CONSERVATOR for your children if both you and your spouse die. A TRUST will avoid the necessity of appointing a CONSERVATOR for your minor children because the successor TRUSTEE would take over management of the TRUST assets for the benefit of the children, and do this without court intervention.

POWER OF ATTORNEY – Usually people need to have two different powers of attorney. The first is a MEDICAL/MENTAL HEALTHCARE POWER OF ATTORNEY to permit someone to make medical decisions for you if you are unable to make those decisions for yourself. Absent such medical power of attorney, it may be necessary to obtain a GUARDIANSHIP for you, especially if you are incapacitated for a longer period of time. The second kind is a FINANCIAL POWER OF ATTORNEY. This permits another person to make financial decisions for you, and assist paying your bills while you are incapacitated.

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As is obvious by the name, the position of TRUSTEE is one of trust. The property you are being asked to manage belongs to someone else who has asked you to manage it for the benefit of the owners and/or the beneficiaries of the TRUST. By being nominated for this position, you have received a strong vote of confidence in your judgment and integrity. By accepting this position, you agree to exercise your best decision-making in managing the TRUST assets for those who are named as beneficiaries of the TRUST. This means that you must take as much or even greater care with TRUST assets than you might take with your own personal finances.

The duty of care required of TRUSTEE is often referred to as a fiduciary responsibility. This responsibility is owed both to the creators of the TRUST (i.e. the TRUSTORS or GRANTORS) and the beneficiaries of the TRUST (the people who receive distributions of trust assets), and encompasses many things including a duty of loyalty, a duty of fairness, a duty to act prudently (i.e. reasonably, conservatively), a duty to keep accurate and detailed records, a duty to act in complete good faith, a duty to keep beneficiaries reasonably informed, and a duty to act impartially, among others. In addition to these general duties, the TRUST may spell out other specific duties. State law may impose even more duties.

A TRUSTEE operates under a TRUST AGREEMENT of one kind or another. This TRUST AGREEMENT is usually very detailed and serves as a roadmap for what the TRUSTEE can do, cannot do, and may do under certain circumstances. As a result, the TRUSTEE has to be well acquainted with the TRUST AGREEMENT and should refer back to it often when making decisions. The TRUSTEE is obligated to seek professional assistance to help him/her understand the TRUST. Additionally, there may be some tasks the TRUSTEE is called to do which may require the assistance of professionals, like filing taxes. Use of various professionals to understand or administer the TRUST is quite common and usually necessary. So long as these services are necessary and reasonable, the TRUST assets may be utilized in paying for this assistance.

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With real estate values recovering, Federal Estate Tax liability is no longer just a concern for the wealthy. It is a real problem for many of us and it can greatly diminish the funds intended for college educations, weddings, and the care of grandchildren.

When we prepare an estate plan we recommend that it be reviewed every few years to make sure it still works. Now is a good time for such a review. Estate taxes are punishingly high. Our government may want more money, but our families need and deserve it more.

A Revocable Living Trust can help. A properly drafted Revocable Living Trust for a married couple can help to minimize estate taxes by effectively doubling the estate tax exemption. There are other advantages. A living trust is a private document. It is not recorded or filed with any court. It allows the transfer of wealth to the next generations quickly, cheaply and in confidence. Expensive and time consuming court procedures such as a Probate can be avoided. Continuing financial help and financial protection can be provided for persons who are dependent upon you such as minor children, elderly parents or a disabled family member.

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The duties of a Trustee (including initial trustees and successor trustees) are numerous, but first and foremost, the Trustee is a fiduciary and is charged with implementing the trust he/she oversees. As a fiduciary, that means that the Trustee owes certain duties to the beneficiaries of the Trust and must act only in their best interests (i.e. the Trustee cannot act in a self-interested manner). “Implementing the trust” means that the Trustee must be absolutely familiar with the terms of the trust and follow those terms meticulously. Where the language of the trust is difficult to understand, or where the trust is complicated, the Trustee must obtain proper professional assistance so that, at all times, the trust is being followed.

The recently enacted Arizona Trust Code specifies the duties owed by a Trustee. See A.R.S. 14-100101, et seq. Besides the duties listed above, some other important duties/responsibilities a trustee should be aware of include:

  • Duty of loyalty to each and every beneficiary of the trust.