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Estate Planning by Chris Hildebrand

Estate Planning - What is an Estate Plan?

Our lives are filled with things we own, people we love, people who reply upon us, and our own need for financial security and good health. Our days are typically so consumed by the demands of work, personal relationships, family and other obligations that we rarely consider what would happen to ourselves or those that love and rely upon us in the event we unexpectedly became disabled, incapacitated, or worse.

You already began your own estate planning process, albeit on a very limited basis, if you ever thought about your financial future, your retirement, your future healthcare, or about how your loved ones will be cared for in the event you were unable to do so. In a few words or less estate planning in Arizona is the process of planning for your financial future and healthcare, as well as the financial security of your loved ones.

Estate planning necessarily requires making judgments and decisions about the future - a future which is not always entirely clear and which may, and often does, change. The potential for change, however, should not prevent you from establishing an estate plan now based upon what you currently know and can reasonably expect regarding your future, as well as the future of your loved ones because you can, and likely will, makes changes to your estate plan as time goes by and changes in your life or the lives of your loved ones occur over time. Such is the nature of an estate plan - it should and likely will change over time.

So, where do you start? What things should you be thinking about when devising an estate plan? The following list contains the most common subjects an Arizona estate planning attorney will discuss with you when establishing an estate plan ideally situated to your unique situation.

  • Your current financial situation, including your current income, assets, and debts.
  • The current financial condition of the individuals to whom you may wish to provide an inheritance.
  • The conditions, if any, under which you want to grant your heirs their inheritance, which is particularly important when you have minor children who may not responsibly manage their inheritance if they were to receive it all at one time.
  • The appointment of a guardian over your minor children.
  • Provisions for your care in the event you were to become disabled or incapacitated, including appointment of a person who may make medical decisions for you in the event you are unable to do so, advanced medical directives, and powers of attorney to manage your financial affairs.
  • Considerations of purchasing life insurance to provide for your heairs, disability insurance to provide for the support of your family in the event you become disabled or incapacitated, and the purchase of long term care insurance to provide financial assistance for your care when you are older.
  • Provisions for the management of your business, including appointment of individuals with proper powers of attorney to manage your business and distribute income from that business to your estate.
  • Evaluation of the effect of gift tax, estate tax, and generation skipping tax issues with your Certified Public Accountant.
  • The person(s) to whom you will delegate the authority to administer your estate, handle your financial matters, and, ultimately, distribute your estate, pursuant to your directives.

What Documents Are Included In An Estate Plan?

A properly drafted estate plan will typically contain documents that each serve a separate purpose, such as a Last Will and Testament, a Family Trust, Powers of Attorney allowing others to act on your behalf, and Advanced Healthcare Directives establishing what medical care you do or do not authorize in the event you are unable to make those decisions. You should be aware you are not required to have each and every such document included in your estate plan. For example, you could choose to have a Last Will and Testament only or you could choose to have a Last Will and Testament with a Medical Power of Attorney to allow others to make medical decisions on your behalf without also having all of the other estate planning documents. However, failing to have a complete estate plan could result in difficult legal issues arising that would likely have been avoided if a comprehensive estate plan was created in the first place.

Last Will and Testament

A Last Will and Testament is a legal document that allows you to provide direction on how to divide your assets and who you wish be appointed to act as the guardian of your minor children. There are, however, several important limitations associated with using a Will as your only estate planning document.

For example, assets held as Joint Tenants With Rights of Survivorship will automatically pass to the joint asset holder regardless of the terms set forth in your Will. Bank accounts with "Payable on Death" designations, as well as retirement accounts and life insurance policies with beneficiary designations, will pass automatically to the named beneficiaries regardless of the terms set forth in your Will. There are also statutory allowances due to a surviving spouse that may affect the assets available to your other heirs.

If you are considering using a Wll as your primary estate planning tool, you should first consult with a qualified Arizona estate planning attorney to review the current title designations affecting your real property, beneficiary designations on your other financial, retirements, and life insurance policies, and the Arizona statutory allowances granted to your spouse as a matter of law.

Family Trust

A Family Trust is a legal document that is either created during your lifetime (i.e., an Inter Vivos Trust commonly referred to as a Living Trust) or is created after your death (i.e., a Testamentary Trust). The Family Trust controls the disposition of your assets amongst your heirs and provides you with significantly greater control over how and when your assets are distriubted to your heirs than can be accomplished with only a Will. A Family Trust may also serve to provide protection from creditors under certain circumstances.

The person for whom the Family Trust is created is referred to as the settlor of the Trust. The people who will benefit from the Trust are referred to as the beneficiaires of the Trust. While the person responsible for adminstering the Family Trust, pursuant to the terms of the Trust, is referred to as the Trustee.

A Trust may either be revocable, meaning the person who created the Trust may change any of the terms of the Trust at any time, or an irrevocable Trust meaning the person who created the Trust cannot change or revoke the terms of the Trust. The creation of a Revocable Trust, however, does not avoid estate taxes that may be assessed if your estate exceeds the permissible estate tax exemption amount.

Once created, the assets to be governed by the Family Trust must be titled into the name of the Trust. This process requires property and financial accounts to be titled into the name of the Trust, as well as a change in the beneficiary designations on life insurance policies and retirement accounts to list the Family Trust as the beneficiary of those assets.

A Family Trust affords a person much greater control over how his or her assets are managed and/or disbursed to heirs. For example, a person may choose to withhold disbursement of 100% of an heir's, such as a child's, share of the estate until that person reaches a certain age or meets certain requirements, such as graduating from college.

As importantly, a property drafted and funded Family Trust (i.e., assets are properly titled to the Trust) should avoid family from having to participate in a legal probate court proceeding; thereby saving the family the cost and attorney fees incurred in a probate proceeding.

Powers of Attorney

Wills and Trust are designed for the purpose of establishing how your financial affairs will be managed and distributed to your heirs. Powers of Attorney, however, are the tools by which those plans will be executed and your affairs managed until your estate is settled.

A Power of Attorney is a document allowing another person, referred to as an Agent, to act on your behalf. A propertly drafted Power of Attorney will direct your Agent to act on your behalf consistent with the terms of your Will or Trust. You may revoke or modify your Power of Attorney, including changing the person you authorize to act upon your behalf.

A properly drafted estate plan should include both a Durable Financial Power of Attorney, a Living Will, and a Health Care Power of Attorney. The Powers of Attorney are referred to as "springing" powers of attorney because they grant your agent the authority to act on your behalf only if you become incapacitated or are otherwise unable to act on your own behalf.

The existence of a Durable Financial Power of Attorney, a Living Will, and a Health Care Power of Attorney eliminates the need for your family to go to court to appoint someone to act on your behalf if you become incapacitated, saving both time and attorney fees that would be incurred if your family had to go to court to appoint a conservator for you.

Additionally, you have the power to choose who will have the authority to manage your finances or make medical decisions for you if you executre Powers of Attorney, as opposed to the court appointing a person to manage your affairs whom you may not have otherwise wanted to manage your finances or make medical decisions for you.

As a practical matter, you should consider appointing one or more successor agents to act on your behalf in the event your chosen person is either unavailable or unwilling to assume the responsibility of managing your financial affairs or making medical decisions on your behalf. Of course, you should speak to the people you are considering appointing to handle these matters before appointing them.

Durable Financial Power of Attorney

A Durable Financial Power of Attorney authorizes your agent to manage your finances, including paying your bills and managing your assets. This document typically allows your agent to gain access to and control your bank accounts, investment accounts, credit card accounts, and all other financial accounts you own.

Advanced Medical Directives and the Living Will

A Living Will is a document containing a person's directives regarding medical care that person refuses to receive in the event that person becomes incapacitated. A Living Will contains what is commonly referred to as Advanced Medical Directives because they contain a person's "directives" that were made in "advance" of that person becoming incapacitated.

A thorough estate plan should include a Living Will to ensure a person's wishes regarding his or her medical care are respected and, as importantly, to relieve family members from having to make those difficult decisions during a stressful time, which will potentially decrease the amount of disagreement between family members regarding those decisions.

Of course, we cannot anticipate every medical situation that may occur in the future and, therefore, we cannot address every medical situation we may encounter in the future. A well drafted estate plan, therefore, should also include a Health Care Power of Attorney.

Health Care Power of Attorney

A Health Care Power of Attorney, sometimes referred to as a Durable Medical Power of Attorney, allows someone to make medical decisions for you in the event you become incapacitated. However, the medical decisions made by the person you appoint cannot be inconsistent with the Advanced Medical Directives you designated in your Living Will.

What is Estate Plan Administration?

Estate Plan Administration concerns managing the estate of a person who becomes incapacitated, incompetent, or passes away. An estate planning attorney creates the estate plan with the goal of minimizing or eliminating probate court involvment in the management or distribution of an estate.

The best way to avoid the need to involve a probate court in the management or distribution of your estate is to simply ensure all of your property is non-probate property. Non-probate property includes property titled in the name of your Family Trust, certain jointly titled financial accounts, and beneficiary designations on retirement accounts, annuities, and life insurance policies.

Family Trust Assets

A Family Trust (i.e., "The Smith Family Trust") is created by a properly drafted legal document appointing a Trustee to manage and distribute the assets of an individual (i.e., the "Settlor") either for the benefit of the Settlor during his or her lifetime or for the benefit of his or her heirs.

The Family Trust is "funded" by transferring title of the Settlor's assets from the name of the individual to the name of the Family Trust. For example, Mr. Smith would change the recorded Deed on his home from his individual name to "The Smith Family Trust" to "fund" the Smith Family Trust with his home.

A Family Trust has several advantages beyond simply avoiding probate court. A Family Trust may protect assets held in the Trust from certain creditors. The Trust also provides a mechanism to manage a person's assets for the benefit of his or her children in the event that parent were to pass away. The Family Trust may allow the Trustee to continue to hold and invest assets owned by the Trust for the benefit of the settlor's heirs, such as children, well into the future such that distribution of the Trust's assets can be delayed until, for example, children become old enough to responsibly manage the assets they will inherit.

A Family Trust may be either revocable or irrevocable. A Revocable Trust allows a person to revoke the Trust entirely and to then place the Trust assets back into his or her individual name. An Irrevocable Trust, however, precludes the person who created the Trust from revocking the Trust or removing the Trust property from the Trust. A large majority of people choose to create a Revocable Trust. The small minority of people who choose an Irrevocable Trust typically do so for complicated financial and tax reasons, which are beyond the scope of the information provided on this website.

Jointly Owned Property With Rights of Survivorship and POD Accounts

The law in Arizona allows two people to own a piece of property as "joint tenants with rights of survivorship". The law in Arizona also allows the designation of "payable on death" (i.e., "POD" account) designations on a person's financial accounts directing who will receive the funds in that account upon the account holder's death.

Property held as joint tenants with rights of survivorship and POD accounts immediately pass to the joint account holder of the property or the designated person on the POD account. This property is considered to be non-probate property and will not, therefore, be subject to the probate court process. In fact, the property will automatically pass to these people even if the person who died had a Will or a Trust that purported to award these assets to someone else. It is important, therefore, to review the beneficiary designations on financial accounts and the titled ownership of assets to ensure those designations do not conflict with the terms of a Last Will and Testament or Family Trust.

Annuities and Retirement Benefits

You may be entitled to receive a retirement benefit under an employee benefit plan offerred by your employer or you may own an Individual Retirement Account (IRA) or a Roth IRA. Typically, a deferred compensation or retirement benefit plan provides for the payment of certain benefits to beneficiaries designated by the employee in the event of the employee's death before his or her eligible retirement age.

After retirement, the employee may elect a benefit option that will continue payments after his or her death to one or more of the designated beneficiaries. It is sometimes advantageous to have thse plan assets paid to Trusts, but naming a Trust as the beneficiary of such plan assets raises a number of complex income tax, estate planning and other issues. Naming the surviving spouse as the beneficiary of certain retirement plans and spousal annuities is mandated by law and may be waived only with his or her properly signed consent.

If you are entitled to begin receiving retirement benefits, the various payment options will be treated differently for income tax purposes. You should seek competent advice as to the payment options available under your retirement plan and the tax consequences of each option.

Life Insurance

If you own life insurance on your own life, you may either:

(a) designate one or more beneficiares to receive the insurance proceeds upon your death, or

(b) make the proceeds payable to your Trust created by you during your lifetime.

If insurance proceeds are payable to your Trust, they will be distributed according to the terms of your Trust.

Estate Planning & Arizona Probate Representation

At Hildebrand Law, PC, we pride ourselves on providing outstanding personalized service to each and every one of our clients. When you work with our group of legal professionals, you will be spend a substantial amount of time with the attorney working on your case to ensure your questions are answered and your legal goals are addressed.

Please contact our team of Arizona estate planning professionals today if you have any questions regarding estate planning or an Arizona probate proceeding by calling us at 480-305-8300.

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4900 N. Scottsdale Rd. Suite 2800 Scottsdale, AZ 85251.
Phone: (480) 305-8300
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