Last Updated: 05/03/2017
Class 101 - The Basics About Living Trusts

What is a Trust?

Learn More about TrustsIf you are beyond this point in your knowledge about Trusts, you might want to go back to the main page. For everyone else, if you don't fully understand what they are, I am going to help you with some basic and general legal information for that purpose.

The "Living Trust" term comes from the Latin "Inter Vivos" which means "during life". This phrase is used to refer to the the making of a gift while a person is still alive, unlike a bequest in a will. So a Living Trust or Inter Vivos Trust is a property controlling entity that is created and goes into effect while you are still alive, and will remain as long as you want it to,  after your demise.

Henry IIITrusts date back to the days of European Kings and conquerors during the Middle Ages. It seems that when a knight went off to fight in far away lands for his King, the very same King often had the bad habit of taking over the management of any property owned by the knight. Eventually, the King would claim ownership of the property, considering it as payment for the management services rendered. Since some of these wars lasted for many years, the knight would come to nothing!

But, when the knights discovered Inter Vivos Trusts and placed their property in them before going away to war, they secured greatly enhanced asset and property protection. The Trust was an organized, legal vehicle complete with an appointed Trustee. Back then, the church was the Trustee of choice for the best chance of getting the property back later.  This Trustee was given the responsibility and power to manage the property and defend it from any claims of abandonment or other false claims the government might have made against it.

Patrick HenryEventually, the concept of the Living Trust migrated across the Atlantic. In 1765, Patrick Henry (who was not a lawyer) became the first to write a Living Trust in the New World. The Trust was written for Robert Morris, Governor of the Virginia colony. Interestingly, his Trust, the North American Land Company, is still operational today!

However, for most of the history of the United States, Living Trusts were not very popular with the mainstream population. This was because in modern times (the birth of the IRS), a separate trust tax return was required each year for all Trust holders which is known as IRS Tax Form 1041. Fortunately in 1981, congress passed a law that allows all American taxpayers to draft a Trust and no longer be required to file a separate Trust tax return (as long as you remain competent and in charge of your trust estate). That opened up the floodgate for this very popular legal estate planning vehicle here in the United States. It is being utilized today by younger and younger generations. (I have written trusts for executives still in their 20's!)

Prior to this huge IRS tax law change the Living Trust concept was usually used only in cases of vast riches. You can bet that most of the past relatives of families such as the Kennedy's, Vanderbilt's, and Rockefellers, had either a Living Trust or a Testamentary Trust in their Will when they died. (A Testamentary Trust is just a trust that is born upon your death and controls your money and property for the sake of your surviving heirs.)

When the tax law first changed, people caught on pretty slowly. But the Living Trust revolution gained steam throughout the 80's and was at full pace by the early 90's. Sadly, in spite of the revolution, about 70% of Americans today still die intestate, meaning they have no Will or Trust in place to control their lifetime achievement - their estate!

And just as the Trusts of old protected the property of knights, doing proper estate planning and hopefully, creating a living trust can still be your fortress today to protect your assets.

Placing your property into a Trust with someone in charge as Trustee does protect your assets for both a long term disability as well as for your eventual demise. This "fortress" planning was a good idea back in the beginning when they first came onto the scene -- and it is just as good an idea today.

Today, properly signed and funded Living Trusts also protect you against high legal fees as long as you choose adequate (meaning trustworthy and financially smart) Trustees and appoint one or two backup Trustees. This will insure that someone will always be in charge, and thus court intervention can be prevented.

The Trust Portfolio of almost any Arizona practitioner also contains valuable Power of Attorney documents. If you don't have these documents, a court may order a Conservatorship in the event that you become disabled. In Arizona, a legal Conservatorship requires attorney representation and multiple court appearances each year until you either recover or die. During this time, you can expect continuous generous withdrawals from your checking account. Fortunately, this "living hell" money scenario can easily be avoided via a low cost properly executed General Durable Power of Attorney document in most cases.

In summary, a Living Trust allows professional management of your property when you are disabled or die. The rest of the coordinated legal documents in a modern Trust Portfolio protect you further from hefty legal expenses and court fees. Normally, this holds true even without invoking an official court declared "disabled" status.

This allows the agent you appoint on your Money Care Power of Attorney document to manage your affairs privately without the extra expense of legal representation required by the court as is the case in Arizona with a legal court Conservatorship. Also, it allows your medical power of attorney agent to represent you in all medical decisions when you can't make them, including mental care decisions under a recent change in Arizona law.

O.K., I Understand the Concept Now.
But, Why Do I Really Need A Trust Here in Arizona?

Trusts reduce Identity TheftsIn the early 90's here in Arizona, I was busier than a one handed paper boy in the retirement communities I worked in. I was going from one client referral to another in order to give consumers what they wanted. Sometimes, I had 3-4 clients all on the same block! Back then, they just wanted to avoid probate with a Living Trust. But today, you can avoid another issue that is mainstream. In fact, it is so widespread that it will soon reach an epidemic level if more controls are not put in place.

I am talking about identity theft of course. ET's (Electronic Terrorists) have invaded the world, using numerous methods at their disposal to gather your personal information, assume your identity, and thereby steal your assets. In fact, as of 2005, the U.S. Trade Commission reported that the Phoenix area had the nation's highest per capita rate of identity theft! 

Indeed, these very talented "bad guys" have ruined the finances of countless individuals. You may not think this could ever happen to you, but if it does, you will wish you had been more careful! Fraud of every kind and description has gone "electronic", and you not only need to protect your identity, but that of your future heirs as well.

Though Maricopa county was one of the first counties in the United States to go online with court proceedings and real estate homeowner information years ago, you can now get online property information from almost any county recorder in the United States. And for most states, it is allowed by state statutes! That includes probate records that may contain what you owned, who gets what, the value of your estate assets, etc. Actually, some states have recently passed legislation to restrict their former online access allowed to view online, certain legal documents such as property deeds.

It Is All Public Information!

Probate CourtProtection of your identity starts with restricting as much as possible the kind of information that ends up on county recorder websites. A properly funded Living Trust can help.

Only a Living Trust can shelter you from probate upon the second death of a husband and wife union if your real (real estate) property asset count exceeds $100,000 here in Arizona, or your "other" property exceeds $75,000. If you own more than these minimums in these two categories -- titling assets in joint tenancy with rights of survivorship does not stop probate when the second spouse dies!

And, a single person has to draft real estate deeds and money accounts with "payable upon death" clauses in order to try and avoid probate! Others, try titling assets in joint tenancy with their brother, sister, or their children to avoid probate when they die.  But sadly, few stop and think about the consequences if that person they place on the title or account (and thus create an IRS reportable gift if their "transfer amount" exceeds $14,000) ends up in a divorce or lawsuit. Law firms smile at these titling "whoops" when they discover them. They smile because many times, it helps raise the firm revenue on the legal case...

Accountants like me just cringe when we discover asset transfers that exceed the current $14,000 IRS allowed gifting limit per recipient per year! I don't have enough fingers and toes to count all the times I have seen these transfers that exceed IRS limits, after the fact. And, few understood their requirement to file an IRS gift tax return Form 709 in the year following a year they exceeded the limit allowed. (Filing date is the same as your personal income tax return) That is unless the transfers were made only between a husband and wife.  (Husband and wife gifts are unlimited and thus, are no longer reportable)

Trying to avoid the costs of drafting a proper living trust portfolio by trying these "alternative" methods, can and often will "back fire" on larger estates or in cases of high litigation professions or rocky marriages! Banks don't always maintain proper payable upon death records. They mix signature cards up with double ownership entries such as "Trust Account" and "Joint Account" which legally means they don't have a clue what they are doing.

THE CLUE: It has to be one or the other -- BUT IT CAN'T BE BOTH!

Or in many cases I have seen a son or daughter will come in and place their name on the signature card which automatically created a joint tenancy account! If the person you put on your accounts dies right before you do -- you are still reclassified under the law as a "single" estate. (unless a wise advisor transferred the accounts to a valid living trust prior to your death) AND THAT MEANS PROBATE on larger estates!

Tip:  It is either payable upon death with sole ownership, or it is in joint tenancy. Joint tenancy with rights of survivorship* precludes any payable death clause. Heck, it even precludes any and all other legal documents such as WILLS and TRUSTS that you may have stated therein who gets the subject property!      

* Usually listed in abbreviation as "JTWROS"

Trying to title a money account both ways could mean "court required interpretation". Who wants that? Do you really want to have to risk making your heirs go to court after your death just to figure out your true intentions?

So, if there was a way to avoid the possibility to give away family asset information, such as can happen when public record probate files are posted on the internet from your county, wouldn't it be prudent to investigate it further?

Well, that is why you are here learning about these concepts so you can be proactive and do something about any problems or concerns this free information may bring to mind. I would not be an honorable and professional financial advisor if I didn't have answers for any general problem areas that may come to mind as you resource on the free informational content of this website. And, rest assured, if you relate any personal circumstances to me after reading this information that I feel needs a legal opinion from a qualified attorney -- you will be pointed that direction first!  (I can only give you general legal information under my AZCLDP licensing)

One thing is for sure, I have heard just about every kind of problem from the individual and family trust clients of the past, and never once was I not able to provide solutions to their problems and concerns with legal documents. And, whenever a legal opinion or trust company opinion was necessary to assist in giving my client a legal solution, it was properly obtained. Some were upon death beds. Others were even after the client died.

Special Note

On top of dying, millions of deceased people's social security numbers are stolen after they die.  Can you imagine the nightmare for your survivors if you first cheap out on them by only leaving an antique legal document AKA a Last Will, then after your death, some crook steals your social security number and takes over you identity, even though you are dead?

Law firms are geared up for this unbelievable circumstance happening more and more.  Get a trust and shred all documents that contains sensitive information.  And be careful who you let have personal documents that contain private information and numbers.


25+ Years of Practice Shows in the "Legacy Trust" Custom Trust Portfolio

Financial Strategies, Inc. celebrated it's 25th corporate year doing business in Arizona in 2015! (July 4th!!!), I am proud to have delivered hundreds of trust portfolios to Arizona consumers.  All without one complaint ever!  In fact, no professional complaints in multiple states of practice have ever been filed in my multiple financial occupations or practice for all 40+ years of total practice!  


Disclaimer: The information contained on this site, though deemed reliable and accurate, is solely the opinion and statements of the advisor profiled. Therefore, it should be considered "general" in nature and no action should be taken based on this information until such time your specific situation and circumstances can be reviewed and analyzed by competent and qualified tax, insurance, legal, and/or other financial advisors. This information is not intended, nor should be construed as legal advice. FSI can not and will not give you legal advice. If you need legal advice, we can refer you if you desire and request it. Founded in 1990, FSI is a long-term Financial Advisory and Arizona domiciled Corporation now providing services nationwide and in some foreign countries. Services profiled herein are available unrestricted to Arizona residents. Residents outside of Arizona are eligible for certain consulting services and to legal (lawyer) referrals by our firm when requested of us. For Arizona residents, communication with an Arizona Certified Legal Document Preparer (AZCLDP) are private and confidential but are not "privileged", such as they would be with an actual Lawyer.

Besides being a licensed  Arizona Certified Legal Document Preparer, Mr. Anderson is also an Arizona Professional Accountant/Consultant  and registered IRS tax preparer and ERO (Electronic Return Originator) agent/firm. He also is an Arizona licensed Professional (Realtor®)/consultant (with Realty One Group) and a licensed Professional insurance agent and corporation for life, health or annuity sales. Lastly, he and his firm is an appointed representative for Royal Metals Group as a Professional Precious Metals consultant and sales advisor. 

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