Taxes remain even if probate is avoided

By February 23, 2011Uncategorized

Many people have picked up on the idea that they can use a revocable living trust to avoid probate under AZ probate law.  But, perhaps because they are not entirely certain what probate is or how a revocable living trust works, or perhaps because they just have a broad misunderstanding of Arizona probate law, some people also believe that establishing a revocable living trust will help them avoid taxes on their estate.  And, while this is simply incorrect, there are a few basic points about estate taxes that will probably put most people to ease on the matter.

First of all, Arizona does not have an estate tax, so you do not have to consider this issue when arranging your affairs.  Secondly, the federal estate tax only applies to estates valued at more than $5 million dollars, so unless you have accumulated quite a bit of wealth, you need not worry about the federal estate tax either.  But, if you do have a large estate, then you should certainly be aware that preparing a simple revocable living trust will be insufficient to help you avoid the federal estate tax.

Now, just because revocable living trusts will do nothing to avoid the federal estate tax does not mean that they are without utility.  Regardless of the size of your estate, a revocable living trust can help you leave an inheritance to your loved ones without burdening them with the probate process.  Assets held in a revocable living trust transfer immediately to trust beneficiaries upon your death under AZ probate law, which could save your beneficiaries a considerable amount of time and expense.

As with other legal planning devices, however, revocable living trusts are not without their drawbacks.  In some instances, they may simply be unnecessary, and in other instances, placing certain assets in a living trust may actually be detrimental to long-term health care planning.  As such, before you commit to the idea of a revocable living trust, you should definitely speak with an Arizona probate lawyer.