Planning Ahead

questions & answers

Question: Our living TRUST was updated for the state of California; should it be updated for Arizona since this is now our primary residence?

Answer:

Under California law, a living trust is one that is created during the settlor’s (the person who created the trust) lifetime. When living trusts are created, there is a lot of flexibility in stating which law will govern the trust and its administration. The trust can be set up to be governed by the state law of the settlor’s choosing. Assuming that in this case no governing state law was specified, then the state laws control. Because people are so mobile, laws of the states are designed to address situations where someone leaves the state where the trust was originally executed (or made official).

Generally, Arizona law accepts transfers of administration of a trust from another state (California) to this state upon certain conditions as might be imposed by the courts of the other state (California) and unless the Arizona court decides that the conditions are in conflict with Arizona rules and procedures. (A.R.S. § 14-7201(A)(4)) You should also check with an accountant regarding any tax effects which may occur depending on which state law will be used. For the most trusts, the state in which in the trustee resides determines the "domicile" of the trust and thus which state's estate taxes might be implicated.