Trusts and Wills – Important Differences to Consider
Making estate plans involves a number of complex decisions. One of those is whether you should make your arrangements through a will or a trust. Wills are the basic documents we are all familiar with, discussing how you would like your assets and possessions divided when you pass, along with other arrangements that you would like made. This is in contrast to trusts, which are considered by law their own entity, to which you can transfer some of your possessions. Many people think that trusts are better because you can avoid taxes on them.
The first thing to know is that most of us don’t have to worry about taxes on our estate. The federal estate tax, sometimes called the “Death Tax,” only applies to estates that are valued at $5 million or more. Arizona does not impose an estate tax at the state level, though some other states do. If you are primarily a resident of another state you should check the local laws, but estate tax rates tend to be for estates that are several million dollars or more, similar to the federal standard. Unless you fall into the millionaire bracket, there is no sense making things more difficult by trying to avoid taxes that only hit multi-millionaires. Using a will should be sufficient for most people.
On the other hand, there are a number of useful things a trust can do. Trusts can help you qualify for state benefits. They can also be used to shield some assets from programs like ALTCS, a Medicaid program in Arizona that pays for long term care. The ALTCS program sometimes tries to recoup a share of long term care costs from the estate of the deceased. However, if you put your assets in a trust before the look back period begins (5 years) you can keep all your assets whole. For seniors who think they will need long term care in the future, a trust may be a good option. An estate planner or an attorney can work with you to see if this is the best option for your specific situation.
