Arizona Estate Planning Basics
Many people believe estate planning is only for the extremely wealthy. Others are simply hesitant to confront the inevitability of death. Whatever the reason, most people in Arizona die without a will. Estate planning can be complicated, but it does not need to be. This post outlines some basic steps the average person can take to protect his or her family and legacy after he or she is gone.
Probate in Arizona
Probate is the process of authenticating a last will and testament and ensuring it is carried out according to the deceased’s wishes. Typically, an executor of the estate is named in the will, and the courts oversee the process. If there is a dispute, discrepancy, or challenge to the will, a judge will determine its validity. While probate is a relatively simple process, it can sometimes take years to settle a probate case, especially if there are challenges to the will. A professionally prepared, legally enforceable will is the strongest line of defense against a lengthy court case. There are actions a person can take to shield assets from probate, such as the creation of a living trust.
When a person dies without a will, state and federal laws determine where his or her assets will go. In Arizona, the intestate laws of succession look like this:
- If a person is married with no children, the assets will go entirely to his or her spouse.
- If a person is married and all the children are descendants of his or her spouse, the entire estate goes to the spouse.
- If a person is married, but has at least one child from outside the marriage, the surviving spouse will receive half of the separate property. The deceased person’s children receives half of the separate property, as well as the deceased’s half of the couple’s community property.
- If a person has no surviving spouse, the entire estate is to be divided equally among his or her children (or descendants, if any of the children are deceased).
- If a person dies with no surviving spouse or children, the estate goes to his or her parents.
- If a person has no surviving spouse, children, or parents, all the assets go to his or her parents’ descendants (the deceased’s siblings, nieces, and nephews). If there are none surviving, the estate is passed on to his or her grandparent’s descendants (the deceased’s aunts, uncles, and cousins).
- Finally, if a person dies with no living descendants, all the assets will be inherited by the state of Arizona.
In Arizona, there are three types of probate: informal, formal, and supervised. A typical case is considered informal probate because there is not much court supervision. More complicated cases, such as a contested will, are entered into formal probate, which involves court hearings and increased judicial oversight. In rare cases, an estate may be placed under supervised probate, in which a judge must oversee every action and decision of the estate. Small estates that are not insolvent (in which there are more debts than assets) may be able to bypass the probate process completely.
Last Will and Testament
Everyone young or old should have a will. It does not need to be complex, just a basic, straightforward document that explains what you would like to happen with your assets and belongings when you die. You should name an executor (also called a personal representative) to handle the administrative affairs of your estate, as well as a legal and financial guardian for your minor children, if you have any. After the testator dies, the will goes through the probate process to distribute this estate.
Probate is not normally a difficult process, but people have several reasons to avoid probate when they can. If you are interested in shielding certain assets from probate, or diverting the probate process altogether, a living trust may be a good addition to your estate plan. A living trust, also called a revocable trust, allows for the transfer of assets to your beneficiaries upon your death.
During your lifetime, you (the trustmaker) will remain in complete control of the assets within the trust. You can modify, alter, or revoke the trust entirely. In the trust, you will name a successor trustee who will oversee the distribution of assets upon your death. Living revocable trusts are an excellent option for those with investment and business interests, large or blended families, multiple real estate properties, or a sizeable estate. It is important to note that while revocable trusts are useful for avoiding probate, they do not protect your heirs from estate taxes.
Health Care Directive (Living Will)
Another important addition to your estate plan is a health care directive, also called a living will or an advance directive. It is a document that informs physicians and other health care professionals of your treatment preferences. In the event you are unable to speak for yourself, your health care directive tells medical professionals how to proceed in situations that may call for life support, resuscitation, artificial nutrition, palliative care, organ donation, and other medical decisions.
Health Care Power of Attorney
In addition to the living will, most people also choose to designate a proxy to make health care decisions for them in case they become incapacitated. A durable power of attorney for healthcare is a document that names an individual to make medical decisions for you if you are unable to do so in the future. Power of attorney is typically given to a spouse, sibling, or adult child. It should only be given to one or two trusted individuals.
Financial Power of Attorney
Similar to the health care power of attorney, a financial power of attorney is granted permission to make financial decisions for you if you should become physically or mentally incapacitated. You can name the same person as both your financial and health care power of attorney, or you can choose a different person for each power. You should specify whether you wish the financial power of attorney to go into effect immediately, or only after a physician determines you to be incapacitated.
Your power of attorney will have the legal ability to do the following:
- Manage your bank accounts, businesses, and investments
- Pay your bills and expenses using your assets
- Accept Social Security, disability, and other payments on your behalf
- Liquidate or sell real estate and other assets
- File a tax return in your name
- Any other financial decisions in your best interests.
A financial power of attorney is required to act in your best interest, and should not commingle his or her separate property with yours. You should only name an individual you trust to make smart, honest financial decisions.
Considerations When Creating an Estate Plan
If you are reading up on creating a will or estate plan, you are already on the right track. There are several factors to keep in mind when designing the estate plan that meets your family’s needs.
Choosing the Right Executor or Trustee
The role of personal representative of an estate is usually reserved for the testator’s spouse or eldest child. However, designating an individual to execute your will or trust is not a decision to take lightly. Your executor could be your age or younger and in good physical and mental health. He or she does not need to be an economic genius, but will be responsible for making sound financial and business decisions. An alternate representative could be named in your will or trust, in case your first choice is unable or unwilling to take on the job.
In some cases, it may be appropriate to name two or more trustees to work together to manage a large estate. Another option is to name a corporate trustee to manage your estate. This service is offered at many banks and financial planning institutions for a nominal fee, and may be a good choice for those who have a particularly complex estate or have outlived most of their close family and friends. Keep in mind that any personal representative nominated in your will is subject to approval by the judge overseeing your estate’s probate.
Providing for Young Children
Estate planning is equally as important for young families as it is for those at the end of their lives, especially when there are minor children involved. Every parent wants to ensure that his or her children will be cared for should a tragedy leave them orphaned. This is an even bigger concern for parents who are single, widowed, or divorced. We are able to name a guardian for your children in your Will if you so instruct. Factors to consider are the individual’s age, physical and financial fitness, lifestyle, parenting style, religious practices, and cultural issues before making a final decision. You may also provide an alternate guardian in case your preferred person is unable to take on the responsibility.
In addition to legal guardianship, the guardian of your children will have complete control of their finances, unless you designate a different person to oversee financial decisions. Many parents also worry about their children receiving the remainder of their inheritance when they turn 18. There are several options for parents who wish to provide for their children into adulthood, including trusts which are not accessible to the child until he or she reaches the age of 21, 25, or 30.
Assets are sometimes left out or forgotten in an estate plan. Some assets that are frequently excluded from the estate plan inadvertently are retirement accounts, old savings bonds, timeshares, promissory notes, oil and mineral rights, and certain types of business interests. Digital property is another asset that is often left out of estate plans. This property may include website domains, intellectual property, online accounts like PayPal, branded internet presence, or cryptocurrency such as Bitcoin. Fortunately, if you are placing the majority of your property in a living trust, you can create what is known as a “pour over” will. This document transfers the rest of your property into a trust upon your death.
Those with sizeable estates should consider all potential tax consequences when estate planning. Check with a tax planning professional to determine whether the state of Arizona imposes an estate or inheritance tax on estates of any size. However, the federal estate and gift tax does apply to estates with a net worth higher than $5.49 million per person. If your estate is one of the 0.2% of estates that are subject to estate taxes, there are steps you can take to protect your assets from this tax, including gifting assets and certain kinds of trusts. Placing property in a revocable living trust does not count towards your estate tax exemption, but other types of trusts can do so.
Estate Document Preparation Services in Tucson and Phoenix
Arizona Statewide Paralegal offers assistance with estate planning documents, without the high price tag that comes with hiring an attorney. We can help you create a last will and testament, revocable living trust, living will (health care directive), power of attorney, and other legal documents that suit your estate planning needs. Contact our offices in Tucson and Phoenix, Arizona to schedule an appointment.