Using A Living Trust In An Arizona Estate Plan

The following article will cover:

• The difference between a living trust and a living will.
• Planning for possible incapacity during one’s lifetime through the use of a financial power of attorney or a living trust.
• The necessity of consulting with an estate planning attorney to determine the most appropriate estate planning documents based on individual circumstances and state laws.

What Is The Difference Between A Living Trust And A Living Will?

Living trusts and living wills serve different purposes and are thus completely distinct documents.

A living trust is an estate planning document. It’s akin to a contract where you, the creator (often referred to as the grantor, trustor, or settlor), are also the trustee during your lifetime. The trustee is in charge of managing your estate and has a fiduciary responsibility to do so. The main purposes of a living trust are to avoid probate, manage your estate during periods of incapacity, distribute your assets as per your instructions, and maintain privacy. Privacy is maintained because unlike a will, which must be filed with the probate court and thus becomes part of the public record, a trust is a private contract.

On the other hand, a living will is an end-of-life directive where you list your healthcare preferences and decisions. This document typically comes into play when a person is incapacitated or otherwise unable to communicate their healthcare wishes. In Arizona, a separate document called a “Do Not Resuscitate” (DNR) order may be used to express your wish not to have cardiopulmonary resuscitation (CPR) if your heart stops or if you stop breathing. This document, typically executed on orange paper, is usually relevant when a physician has determined that a patient’s condition is terminal.

While both documents are integral parts of comprehensive estate planning, they are designed for different purposes. A living trust pertains to the management and distribution of your estate, while a living will pertains to your healthcare preferences in end-of-life situations.

Can I Plan For Possible Incapacity During My Lifetime? What Estate Planning Documents Are Unnecessary Under The State Laws?

Certainly, you can plan for possible incapacity during your lifetime. There are two primary ways to approach this: using a financial power of attorney and establishing a living trust.

• Financial Power of Attorney: This legal document allows you to delegate authority over your financial assets to another person, usually encompassing tasks such as managing bank accounts. There are two types of powers of attorney – one that takes effect immediately, and a ‘springing’ power of attorney which comes into effect only upon the occurrence of a certain event, typically the incapacity of the principal. The method to determine incapacity is often defined in the document itself, with a common practice being the requirement of independent physicians declaring the individual incapacitated.

However, the effectiveness of financial powers of attorney has been somewhat diminished in recent years, as banks frequently decline them for various reasons, ranging from the bank insisting on their own forms to not recognizing copies of powers of attorney or those from out of state. Consequently, while every estate plan should ideally include a financial power of attorney, they might not always be honored by financial institutions.

• Living Trust: Given the challenges with powers of attorney, a more reliable way to plan for potential incapacity is through a living trust. In this scenario, you would retitle your assets into the trust, name yourself as the initial trustee, and designate a successor trustee who would take over upon your incapacity. The successor trustee would manage your assets during your incapacitation period. This method avoids the potential issues of power of attorney, ensuring a smoother transition of financial management during incapacitation.

As for documents that might be unnecessary under state laws, it depends largely on your individual circumstances and the specifics of your state’s legislation. Therefore, it is advisable to consult with an estate planning attorney to ensure you have the most effective and streamlined plan in place for your situation. For more information on Using A Living Trust In An Arizona Estate Plan, an initial consultation is your next best step.