Arizona Estate Planning Frequently Asked Questions

Why Should You Get An Estate Plan in Arizona?

There are many reasons you should consider creating your estate plan. An estate plan will include powers of attorney that enable a person you choose to manage your finances and make medical decisions for you in the event you are unable to do so. An estate plan may also avoid the need for your family to hire attorneys to determine how your assets and debts are to be managed and divided.

Including a Family Trust as a part of your estate plan will also allow you more control over when you assets are transferred to your family members and the conditions under which they will be transferred. A Family Trust also allows you to grant a part of your estate to future generations, such as grandchildren or great grandchildren.

Why Should You Get An Estate Plan in Arizona?

There are many reasons you should consider creating your estate plan. An estate plan will include powers of attorney that enable a person you choose to manage your finances and make medical decisions for you in the event you are unable to do so. An estate plan may also avoid the need for your family to hire attorneys to determine how your assets and debts are to be managed and divided.

Including a Family Trust as a part of your estate plan will also allow you more control over when you assets are transferred to your family members and the conditions under which they will be transferred. A Family Trust also allows you to grant a part of your estate to future generations, such as grandchildren or great grandchildren.

Estate Planning in Arizona | Overview

Understanding Gifts, Devises, and Bequests in Arizona

There are a couple ways people handle their estate in Arizona. Some choose to either give gifts of income or property while they are alive, while others want to transfer their property upon their death through what is called a “devise” or a “bequest”. The two terms are used interchangeably to mean a transfer of the property in a Will or Trust.

Gifts Made During One’s Lifetime

Taxes may be imposed on such “gifts”, “devises”, and “bequests”. Those taxes are imposed at the time the property is transferred to another person. Not all estates, nor their grants of property or money, during lifetime or upon death are taxable. For example, gifts of under $14,000.00 per year are not taxable. Gifts over that exemption limit are taxable.

Some people with estates over the exemption limit choose to make gifts during their lifetime to try to bring their total estate value as close the the $5,000,000.00 plus overall exemption amount. The federal exemption amount if 2016 was $5,450,000.00.

Devises and Bequests Upon Death

Some estates are exempt from taxation if the estate is worth less than the exemption amount. The exemption amount changes and is currently over $5,540,000.00. So, estates worth less than $5,540,000.00 are not taxable. If the total of the gifts, devises and bequests is greater than that amount, an estate tax will apply.

Generation Skipping Transfers

There are some transfers that will not be immediately made upon death because they apply to, for example, future grandchildren; know as a generation skipping transfer. Taxes may also be levied against those transfers if the total estate is worth more than the $4,540,000.00 current exemption amount.

Unlimited Marital Deduction

The Unlimited Marital Deduction provides a way to transfer money to family members during a person’s lifetime without incurring tax liability. For example, the payments of college expenses, medical bills, and even transfers from one spouse to the Trust of his or her Wife or Husband may be made completely tax free. These unlimited marital deductions from the estate do not count towards the federal exemption amount.

Arizona does not, at the time of this writing, impose a state inheritance tax.

What Happens to Your Property If You Do Not Have a Will in Arizona?

The terms used to describe the situation of someone passing away without a will is “intestate”. If someone dies intestate, the Arizona laws will determine how your estate is to be divided among your heirs. There are too many scenarios to cover the numerous different scenarios that can occur, but relationships such as having a spouse (or not), children, grandchildren and even parents can effect how the estate is divided.

This creates an obvious problem, which is the fact that you and your family cannot control the manner in which your estate is divided. You may have certain intentions, but without a will those intentions may not be realized.

What Can I Do in a Valid Arizona Will?

A Will is a written document that allows you to divide your property in a manner you choose. There are some laws, however, that impact the decisions you may make in a will. Arizona technically does not allow you to disinherit your spouse. For example, Arizona Revised Statute Section 14-2402 provides your spouse with an $18,000.00 Homestead Exemption. Arizona Revised Statute Section 24-2403 provides your spouse with a $7,000.00 Exempt Property Allowance. Arizona Revised Statute Section 14-2404 provides your spouse with a Family Allowance.

However, you may own property that you made specific beneficiary designations upon which automatically go to those stated beneficiaries. For example, you may have designated beneficiaries on your life insurance policies, your bank accounts, investment accounts, retirement accounts and the like. Your Will, therefore, will not pass those assets because they are controlled by those beneficiary designations.

Arizona Simple Will Versus a Family Trust

As Simple Will is used in Arizona when the sole desire is to distribute all of a person’s assets upon his or her death. A Family Trust is added when the person does not wish to immediate distribute their assets but, instead, wants to control the distribution of his or her assets. For example, if a person has children he or she may not want those children to receive all of their inheritance all at once. Instead, they may want the Trust to make payments over time to the children.

These trusts can either be created during your lifetime, which is referred to as an Inter Vivos Trust. Alternatively, the Will itself can indicate a Family Trust is to be created after a person’s death, which is referred to as a Testamentary Trust. Either trust may be either a revocable or irrevocable Trust. As the names describe, a person who creates a revocable Trust may change or completely dissolve the Trust. The person loses the ability to dissolve an irrevocable Trust.

In addition to handling your financial affairs, you may indicate who you want to receive guardianship rights over your children. Although that designation can be challenged and is able to be reviewed by a judge, your preference will be given weight in the appointment of that guardian.

How Are Wills Executed in Arizona?

Arizona requires a Will to be signed by the person making the Will, as well as two witnesses. Those signatures should be notarized. If properly executed, the Will can be admitted into probate court as a “Self Proven” Will; which means the testimony of witnesses to authenticate the Will is not required.

Joint Property and an Arizona Will

There are several ways two or more people can own property together. Once such manner is to hold title to property as Joint Tenants With a Right of Survivorship. This form of title means that the ownership interest of a person automatically transfers to the other owners upon death. As a result, that prior ownership interest is no longer a part of the estate; although the value of the interest is included for the purpose of determining if estate taxes will be need to be paid.

Another form or property ownership is when two or more people own the property as Tenants in Common. In this case, the property remains a part of the estate

How Is a Power of Attorney Used in an Estate Plan in Arizona?

A Power of Attorney is a document signed by you that gives a person the legal authority to do things on your behalf. You may grant a person broad General Power of Attorney to act on your behalf regarding anything. You may have a Limited Power of Attorney that will only grant some limited authority to act on your behalf for only certain things.

You can limit your Power of Attorney to last only a certain time period or you can have it be ongoing until such time you revoke that Power of Attorney. You can do this anytime during your lifetime. This type of Power of Attorney immediately revokes all powers under it upon your death.

A Durable Power of Attorney, on the other hand, is meant to survive your death; meaning the person granted the power to act on your behalf may continue to do so upon your death. This does not mean he or she can do whatever they want with your assets. The person has a fiduciary duty to manage your assets and debts in a manner consistent with your estate plan.

Lastly, you may have a Power of Attorney that only becomes effective if you become disabled and are unable to make medical or financial decisions for yourself.

What is a Living Will in Arizona?

Situations arise when a person is significantly injured or suffering an impairment that prevents them from making medical and other care decisions for themselves. You may grant another person the right to make medical decisions for you in an Arizona Living Will. You may also, however, issue your own Advanced Healthcare Directives telling medical personnel what treatment you will accept and what you do not want performed.

What is a Probate Proceeding in Arizona?

A probate proceeding in Arizona is a formal court proceeding where the judge oversees that your wishes set forth in your Will and/or Family Trust are completed. The judge will oversee that the Executor you appointed in your estate planning documents is “closing up” your estate by paying your debts and distributing your assets.

The Executor will be responsible for documenting and providing accounting of all of your assets, as well as monies being spent by the Executor to pay your bills until all of the tasks needed to be done are completed.

How Can You Avoid Probate of Your Estate in Arizona?

The creation of a Family Trust can avoid the need to go to probate court. The Family Trust, as the owner of the assets in the Family Trust, simply manages its own process through your appointed representative. That person still has an obligation to provide an accounting to all of your heirs and follow your wishes set for in your estate planning documents.

Unless an heir or family member files a probate case, the administration of your estate is down out of court. If a family member believes your representative is not fulfilling his or her obligations under the Family Trust, he or she can file a probate case and the court will then get involved to ensure your estate plan is administered as stated in your Will and/or Family Trust.

What Responsibilities do Executors and Trustees Have in Arizona?

As you can imagine, all of persons affairs must continue to be manages when they pass away. Bills need to be paid, assets may need to be sole and, most importantly, the terms in the deceased person’s estate planning documents must be completed. The person appointed as the Executor or Trustee is the person who performs all of those responsibilities. These people also must provide an accounting of all assets and transactions he or she has done for the estate.

Your Executor or Trustee owes a fiduciary duty to your estate. This means he or she has to act in the best interests of your estate for the protection of your heirs and cannot simply be guided by his or her own interests. There is legal liability for breaching that duty; meaning the Executor or Trustee can be sued if they breach that fiduciary duty.

The Executor or Trustee will also be responsible to complete and file an income tax return for the estate. They typically refer the preparation of those tax returns to a CPA. They may also work with other financial advisers on the management of any investments held in the estate. So long as they exercise reasonable judgment on the decisions being made on behalf of the estate, they should not be held liable for any decisions that negatively impact the estate; like, for example, if the investments go down in value.

Typically, the end of the process occurs when all of the steps outlined in the estate plan have been completed. This may occur fairly quickly or may continue for years in the future if, for example, the estate contained terms outlining the Executor’s or Trustee’s continual payment of support to the deceased’s children over a period of time.