Articles Tagged with Estate Planning

As we age it is foreseeable that our abilities and mental functioning will degrade. Many of us will need some type of assistance later in life. Often, the assistance needed is with finances and payment of bills.

Since we know that this need is likely to arise, it makes sense to plan for it in advance instead of simply hoping for the best.

Having a plan in place to deal with future incapacity is the best way to protect against the loss or misuse of your funds. In most cases, the financial abuser/exploiter is a family member or other person known to you. By the time help is needed, you are no longer able to protect yourself.

A Life Estate is an interest in real property that terminates upon the death of a specified person, usually the owner of the Life Estate. There are some terms that are unique to life estates. The owner of a life estate is often called a “life tenant.” The life tenant has the right to reside in the home for life or for so long as he or she may choose. Upon the termination of the life estate the persons who obtain full fee simple ownership of the real property are called “remaindermen.” A life tenant may live in the property but cannot sell it without the consent of the remaindermen.   A life tenant must respect the property and do nothing that would decrease its value.

A life Estate is usually created by use of a deed that specifically reserves the life estate. The deed also can specify the conditions upon which the life estate is granted. A life tenant may have the responsibility for maintenance, taxes, insurance and other costs connected with the property for so long as he or she resides there.

One benefit of a life estate is that it allows a person—often an elderly person—to sell their home (usually to a family member), generate cash to live on and still reside in the home for life.

When I first started practicing law digital assets did not exist. Now many of us consider digital assets indispensable since they make up a large portion of the record of our lives. Digital Assets are, of course, all of the things we store on the web; social media pages such as facebook, photos, videos, personal and business documents, personal and business websites, e-mails and even text messages. So what happens to all of this when a person dies? Does it all pass to the decedent’s heirs? Until just recently, these questions were answered by the website’s Terms of Service Agreements. These are the long documents in legalese that a prospective user must accept as a condition of using the site. Most of us are guilty of simply clicking the “accept” button without reading any of it. But these agreements supersede a decedent’s will or trust and can create hardship.

In 2016 Arizona changed this and brought predictability to the disposition of digital assets by enacting the Fiduciary Access to Digital Assets Act (FADAA).   The new law became effective on August 8, 2016 and provides that you can now pass your digital assets to your heirs or beneficiaries by your will, trust, power of attorney, notarized written statement or by using a website’s online tool provided for this purpose, if one exists. Not only can you now pass your digital assets via your estate planning documents, you can also specify that access to certain digital assets is to be withheld and the content deleted.   The complete text of the new law can be found at A.R.S. §14-13101 through A.R.S. §14-13118.

To take advantage of the new law we recommend that you consider amending estate planning documents to give instructions for the disposition of your digital assets. If you use an online tool to give such instructions, you need to know that your online instructions will supersede any instructions given in your will or trust. It works like a Payable on Death account which passes the account balance to the listed beneficiary despite the existence of a will or trust.   We also recommend that you provide your attorney or other trusted individual with a current listing of the online accounts and websites used by you with the log in and password information for each.

Your Will is an essential estate planning document. However, it covers only those assets that make up your probate estate. There are other assets called non-probate assets and your Will does not control these. Your Phoenix estate planning lawyer needs to know about both types of assets when preparing an estate plan.

Non-probate assets are normally those for which you have already designated a beneficiary upon your death. These are often:

  1. Life Insurance policies,

If there is no will, does all the decedent’s property go to the State of Arizona? What happens?   This is a question that is asked frequently. Fortunately, in Arizona, property of a decedent rarely goes to the state. Our statutes provide for a wide pool of family members who are potential heirs.

ARS §14-2102 gives preference to a surviving spouse who normally inherits the entire estate provided that any children are the issue of both the decedent and the surviving spouse. Where there are children from a different relationship, the estate is divided between the surviving spouse and the children.

ARS §14-2103 determines what happens if there is no surviving spouse. In that event, a decedent’s estate is distributed as follows:

What is an ancillary probate? When a person dies, their state of residence has jurisdiction over their estate. This is the state where a probate is usually filed. The state of residence is also normally where the decedent’s property is located.   However, sometimes a decedent owned property in another state. When this happens, an ancillary probate is often needed to handle the out of state property. It is a probate proceeding that is ancillary to and designed to assist the main probate.   Ancillary probates are common in Arizona because thousands of our winter visitors have purchased homes here but continue to reside in their home states.   Similarly, many of our Clients probating an estate here in Arizona often need our help to locate and hire an out of state attorney to transfer property the decedent owned in that state.   Obviously, probating an estate in two or more states adds additional cost and complexity to the handling an estate.

How can an ancillary probate be avoided? An ancillary probate can be avoided by using the same strategies employed to avoid any probate. Assets need to be held in such a way that they do not need to go through a probate. They become non-probate assets. Some of the common ways to accomplish this are:

  1. Use payable on death (POD) or transfer on death (TOD) accounts. If your financial institution accounts are set up this way, no probate is needed to transfer the accounts to the person or persons you have named as transferee.

Much has been written by estate planning attorneys as to how to avoid probate. It is true that drafting of estate planning documents with a goal of probate avoidance is of great value to families. But sometimes a probate is needed or can be useful. Here are a few of the benefits of the probate procedure:

  1. The most important benefit is that a probate provides a court supervised procedure. This encourages a timely and more formal administration of the estate. It also provides a framework within which a duly appointed personal representative can have subpoenas issued, investigate the assets and debts of the estate, recover assets, collect money owed to the estate, and challenge disputed claims.   ARS 14-3701 lists some of the duties of a personal representative.
  2. In administering a probate estate, a personal representative is held to the same fiduciary standard as a trustee including the duty to account. ARS 14-3703. This provides a measure of protection to the estate beneficiaries or heirs.

Revocable Living Trusts are flexible estate planning tools.   They can, among other things, avoid probate and streamline estate administration after a death. They can also assist during a Trustor’s lifetime by avoiding the potential need for a guardianship.   These benefits are well known.   However, what is sometimes overlooked is that a Trust is not the same as a Will. A Will is drafted and signed with no additional work needed other than a periodic review to make sure it’s terms are still appropriate.   A Trust is also drafted and signed.   But once you leave your lawyer’s office with your newly signed trust documents, a great deal of work still needs to be done.   This is the funding of your trust.   In order to deliver the benefits that make Trusts so popular, the trust must be funded.   This means that ownership of your property needs to be transferred to your Trust. It is unfortunate that this important second step is so often overlooked.

We meet often with children who bring in Mom and Dad’s Living Trust documents. The Trust usually appears to be professionally done.   It is clear that Mom and Dad likely paid a substantial fee to have it drafted. Yet when we start discussing what property is owned by Mom and Dad’s trust we get blank stares.   Further discussion establishes that no assets were ever transferred to the Trust or, some assets were transferred when the trust was first created, but those assets have been sold and others purchased that have not been transferred to the Trust.   When this happens, we have the unpleasant task of advising the kids that, despite Mom and Dad’s well drafted Trust, a probate is still needed to transfer their assets to their Trust so that they can be administered and distributed as the Trust directs.

Even when Mom and Dad are diligent and transfer all of their Arizona property to their trust, it is not uncommon that out of state property is never transferred.   Where this happens, the result is the same, a probate is needed.

You’ve heard the saying “You get what you pay for” – usually about the time that you have discovered that the great deal you snagged did not really save you anything because what you purchased did not live up to your expectations. And now you have to spend more money to fix it or replace it. This saying can, all too often, hold true for your ESTATE PLANNING as well. Sometimes the least costly solution is simply not the best solution, nor the most cost-effective. A WILL, for instance, is cheaper than a TRUST, at least in the near term. It costs less to the person obtaining it and, of course, only becomes operative upon you passing. But to make it effective on your passing, especially where you own property that is titled (i.e. real estate), your heirs will have to probate the WILL, have someone appointed as a Personal Representative, pay the costs for filing with the court, administer the PROBATE estate, and possibly pay an attorney to assist them.

On the other hand, a TRUST may cost more up front, but in the long run is often able to leave more to the TRUST beneficiaries because the TRUST does not have to incur the costs associated with PROBATE administration. Further, the TRUST does not need to be submitted to the court to be made effective. Rather, a TRUST becomes operative immediately after you create it, and you can use it as the central mechanism to coordinate your ESTATE PLANNING needs. And, because it becomes effective immediately, management of the TRUST assets is easier during the lifetime of the trustor (the person creating the TRUST) especially where the trustor becomes impaired. In this instance, a successor TRUSTEE takes over without court intervention, and provides a seamless process for management of the TRUST assets for the benefit of the trustor, without resorting to the need for a CONSERVATORSHIP proceeding (another type of PROBATE proceeding which declares a person incompetent and appoints a person called a CONSERVATOR to manage the incompetent person’s property and assets for the benefit of the incompetent person).

TRUSTS have other benefits too. Because you avoid filing PROBATE, your estate plan remains confidential. For many people, this is a very important consideration. Where you have a significant amount of assets, a TRUST can help reduce estate taxes which in turn allows you to leave more of your property to your family, friends and charities.

Probate is the process of paying a decedent’s debts, identifying beneficiaries to a decedent’s property and distributing the decedent’s property according to the decedent’s will. In Arizona, probate can be formal or informal and is governed by Arizona Revised Statutes § 14-3301 and § 14-3401. Generally, when a person dies, their property is distributed pursuant to the terms of their will. In some cases, if there is no will, the property passes by intestacy.  It is possible that property could also be held in a trust, and thus not part of a probate estate either. However, there are certain circumstances where property will pass via operation of law. Which means that property is not part of the estate of the decedent.

One method of accomplishing this is to designate beneficiaries on financial accounts. By naming a beneficiary, the account automatically transfers to the named beneficiary without the need to probate the will. Some examples of accounts that allow for such a designation are checking accounts, savings accounts, money market accounts and certificates of deposit. Since the beneficiary automatically inherits the account at the time the decedent passes away, a probate is not needed in order to transfer ownership of the property. One common means to accomplish this is to designate an account as POD, or payable on death. These accounts are simple and inexpensive to set up. They are also easy to administer. Upon the decedent’s death the beneficiary typically only has to produce an ID and a death certificate to collect on the account. Not all accounts can be designated POD however.

Accounts can also be held jointly. This means holding a joint account in the name the account holder and any beneficiary. Retirement accounts such as IRA and/or 401(k) accounts. Can also have a named beneficiary. Finally, property can be simply gifted away during the lifetime of the decedent. While effective, one limitations is the amount that can be gifted per year for tax purposes.