Why a Trust is Better than a Prenuptial Agreement in Arizona?

Arizona is a community property state. Understanding what your future spouse will be entitled to is important before your get married, specially if you have a substantial assets to protect.

This blog talks about Prenuptial agreements as well as Living Trusts. You need to understand what both instruments are and how you can use them for your benefit before you get married. Giving you new spouse fair and reasonable disclosure prior marriage is important to create trust and it helps to comply with Arizona law in case of a divorce.

What are Prenuptial agreements?

A prenuptial agreement, sometimes just called a prenup, is a legal contract that two people sign before they get married. The prenuptial agreement clearly lays out how money, property, investments, businesses, retirement accounts, and other assets would get divided if the couple gets divorced in the future.

Prenuptial agreements typically address topics like alimony or spousal support after a divorce, division of real estate or personal property, inheritance rights if one spouse dies, and many other financial matters. The contract spells out in legal terms who gets what share of the assets accumulated both prior to the marriage and during the course of the marriage. Prenups also often specify how certain debts would get allocated during a divorce settlement.

The main purpose of creating a prenuptial agreement is to avoid long debates or court battles over asset distribution if the husband and wife split up down the road. Couples enter into prenups for a variety of reasons. Younger couples with assets to protect plan for "just in case" since the average lifespan of marriages is decreasing. Older couples remarrying after divorce or death of a spouse use prenups to ensure financial security for any children from previous relationships.

Overall, prenups provide a way for couples to think through the unthinkable yet be prepared if an unfortunate divorce ever does occur.

Prenuptial agreements often specify that the contract terms are valid for a set period, frequently 10 years. After that initial decade of marriage, courts may review and revise aspects of the prenup upon request if the couple's situations have changed significantly. Updates may be warranted based on factors like length of marriage, incomes and assets, or family circumstances. The 10-year mark provides a reasonable timeframe for reassessing the fairness and applicability of the original prenuptial agreement. Some previous separate property may now be considered marital property for example.

What is a Living Trust in Arizona?

A living trust, also sometimes called a revocable living trust in Arizona, is a customizable legal document governed under Arizona state laws that allows you to place ownership of valuable assets into the trust during your lifetime. Typical assets transferred into a living trust include real estate like houses or land, financial accounts such as bank and brokerage accounts, stocks and bonds, life insurance policies, businesses or partnerships, vehicles, art and collections, personal property, and other investments.

You designate a trusted person, professional fiduciary company, or financial institution to serve as your trustee which involves judiciously managing the assets in the trust on behalf of the trust beneficiaries. As the trust creator, you can name yourself trustee initially.

The terms of the living trust specify exactly how and when trust assets eventually get distributed to beneficiaries of your choosing. Those beneficiaries might be a surviving spouse, adult children from previous marriage, other relatives, a charity, or some combination selected by you.

Living trusts are powerful estate planning tools in Arizona because trust assets avoid the prolonged process of probate following the trust creator's permanent incapacity or death. As legal arrangements goes are one of the best way to protect significant assets and pre marital assets.

Prenup or a Trust? - Protect your Assets from Divorce

There are a few reasons why a living trust can work better than a prenup for some couples in Arizona.

Customize Your Living Trust Terms

When you set up a living trust, you have more flexibility over the terms. You can be very specific about how you want your assets handled for many different situations. This includes during your lifetime if you become very sick or incapacitated. It also handles distribution of assets after you pass away. With a thoughtfully crafted living trust, you can ensure your assets go to your spouse or surviving spouse, children, or other beneficiaries exactly how you intend.

A prenup tends to focus specifically on divorce. The terms usually cover topics like alimony payments and division of property. But you can’t anticipate every future possibility or family dynamic with a prenup. Your living trust allows you to map things out in more detail beyond just divorce.

Avoid Court During Inheritance Conflicts

If there ever comes a time when your loved ones disagree over inheritance, assets in your living trust may be able to avoid court battles. Because you’ve clearly laid out distribution instructions upfront in your estate planning, there is less room for relatives to argue. However, assets that pass directly to heirs without a trust often do end up contested in court.

Living trusts can also help you minimize estate taxes after you pass so more assets reach your beneficiaries. You can still control property when you are alive as well.

Keep Assets Private

When you create a living trust, the details remain private. That includes how much you’ve chosen to leave to your spouse versus children from a previous marriage for example. A prenup must be shared with the court to be valid. That means the financial information becomes public record. You will need to provide full financial disclosure to the court.

Some couples want to keep their assets and allocation decisions private from others. That's easier to accomplish with a thoughtfully designed living trust instead of a premarital agreement.

Plan for Remarriage

Did you know the average length of a first marriage in the U.S. is about 8 years for women and 9 years for men? With divorces and remarriages so common, a living trust allows you more flexibility to update your plans. You can change the trustee or beneficiaries over time if you remarry, have more children, or situations shift.

Prenuptial agreements are not that flexible. Updating a prenup requires going through additional legal procedures each time. That often involves renegotiation between spouses which may introduce new tensions.

Make Amendments Easily

Speaking of flexibility, modifying your living trust is much simpler than altering an ironclad prenup. You may realize 5 or 10 years into your marriage that you want to adjust to changes life brings. This can be done fairly seamlessly by working with your estate planning attorney. You can for example turn separate property into marital property by adding or removing the property from your trust.

However, most courts won't modify or overturn major terms in a prenup after marriage. It's very challenging to make even small tweaks down the road. You can change the terms if you have financial obligations from prior marriage for example.

Avoid Contentious Negotiations

Working out a prenup before your wedding usually involves back-and-forth bargaining between you and your future spouse. Even with attorneys present, prenup talks can quickly become emotionally-charged and stressful. Disagreements early on can leave both spouses feeling resentful. That is probably not the best way to start a marriage anyway,

A living trust puts you fully in control since you create it before marriage and separate property was added to the trust before you got married. You decide upfront what's fair without heated debates. When thoughtfully designed, a living trust leaves less room for trust beneficiaries to later question your intentions. That frequently occurs when people feel slighted by prenups.

Gain Certainty

The bottom line is living trusts bring more certainty over inheritance distribution and management of your assets if you become incapacitated. The courts uphold properly executed living trusts in most all situations. Prenups tend to face greater scrutiny during divorce proceedings in court. Judges have been known to set aside prenuptial agreements entirely depending on the circumstances. A post nuptial agreement is even worst as it is very easy to say a spouse signed that under duress.

Hopefully divorce will never occur. But nobody really knows what the future may bring once they say "I do." All relationships take work. However, starting out your marriage with resentment over prenup negotiations can quickly erode the foundation of trust. A living trust puts key financial decisions in place ahead of time with less room for doubt.