Transfer, Declaration, or Power of Appointment
Creating a trust in Arizona is not a one-size-fits-all process. The law provides three distinct methods, and the right one depends on what the person creating the trust is trying to accomplish and when the trust should take effect.
A trust may be created by: 1. Transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect on the settlor's death. 2. Declaration by the owner of property that the owner holds identifiable property as trustee. 3. Exercise of a power of appointment in favor of a trustee.
A.R.S. § 14-10401The first method is the most common. A person transfers property to a trustee, either during their lifetime (creating a living trust) or through a will (creating a testamentary trust). A living trust takes effect immediately, while a testamentary trust comes into existence only after the person passes away and the will goes through probate.
When You Are Your Own Trustee
The second method, a declaration of trust, is what most people use when creating a revocable living trust. The property owner declares that they hold their own property as trustee. There is no transfer to a third party. This is why a revocable living trust lets you keep full control of your assets during your lifetime. You are both the person who created the trust and the person managing it.
The third method, using a power of appointment, applies in more specialized situations. If someone holds a power of appointment, such as the right to direct where trust assets go, they can exercise that power by directing assets into a new or existing trust. This method typically arises in multi-generational estate planning or when an existing trust gives a beneficiary flexibility to redirect distributions.
Each method produces a valid trust under Arizona law, but the practical implications, including control, tax treatment, and timing, differ significantly. Partner attorneys can help determine which approach fits a particular family's needs.
