There are many estate planning myths being circulated in cyberspace and around the water cooler these days. Misinformation is not useful, even though sources may be well-intentioned family members, friends, and coworkers. Do not rely on myths. Do not be misinformed.
An estate plan is not something to experiment with. There may never be an opportunity to correct a defect or include a document that gives effect to the person’s intentions. As the principal grantor, give planning for the future the serious consideration it deserves.
No cookie-cutter estate plan is worth the paper it’s printed on. Maybe it’s easier to be lulled into a sense of complacency and do nothing. To assume everything will work out on its own. But that’s unlikely to benefit you or your family should circumstances change. Every individual looking to prepare for the future should consult an experienced estate planning attorney.
There really is only one way to get legal information about the impact Arizona and federal law can have on your estate. By consulting a lawyer whose profession demands staying on top of the complex laws in this area. Someone whose business it is to guide people through the process of protecting assets and planning for the future.
Be mindful that estate planning is an area of law practice, just as family law is an area of practice. Why ask Google for general legal advice that has no application to your life? When all of your eggs are in one basket (your estate), you need to control what happens given the occurrence of certain events. Divorce, birth of a child, death of a spouse, adoption, retirement, remarriage, any number of circumstances warrant creation, review, and revision of one’s estate plan.
Attorneys with the Arizona Law Group have over 70 years of combined legal experience. That’s plenty of time to learn where people are struggling in life. We have heard many myths about what should be included in a basic estate plan. We have corrected many misperceptions about why it’s important to have a professionally prepared plan. What follows are some of the more common myths and misunderstandings we have encountered over the years. Hopefully this discussion will clarify a few things before you start the process.
Estate planning is for everyone, not just the wealthy. Every individual should have a basic estate plan in place, regardless of net worth. From a legal perspective, every person has an estate in Arizona law:
“Estate” includes the property of the decedent, trust or other person whose affairs are subject to this [Title 14] … As it relates to a spouse, the estate includes only the separate property and the share of the community property belonging to the decedent or person whose affairs are subject to this title.
ARS § 14-1201(17).
Of course some estates are larger than others, but the notion that only millionaires qualify for estate planning has no basis in fact or law. Every estate, regardless of the person’s net worth, may benefit from the use of certain legal instruments invoking protections available under state and federal law.
To protect yourself and your family, be ready to discuss the following estate planning instruments with your attorney:
When tailored to specific circumstances, how might these estate planning tools be beneficial? The list of positives is lengthy. Here are a few reasons why you should have a plan, too:
Who should have the last word? You or the probate judge who has no knowledge of you or your family?
If you desire to exercise any semblance of control over your future and hard-earned estate, then definitely yes. The Last Will and Testament is an essential component of the most basic estate plan. This instrument sets forth your intentions and how your assets shall be distributed upon your death. The Last Will is the first step in transferring legal guardianship to a minor child. Parents, spouses, divorced adults, retirees, college students, everyone should have a Last Will, regardless of net worth.
When someone dies intestate – leaving no Last Will – the law of intestate succession in Arizona must control distribution. See ARS § 14-2101(A). Importantly, if no one is qualified to claim the intestate estate, then the estate passes to the State of Arizona. See ARS § 14-2105. Rarely is that what people desire, but it can and does sometimes happen. Here are some other consequences of dying intestate:
The easiest way to avoid unintended consequences and intestate succession is to have a valid Last Will and Testament. Do you intend to choose your beneficiaries? Do you want to ensure that minor children are cared for by those you know, love, and trust? Then a Last Will should be the first instrument in your estate plan. There are only two alternatives. Either take control because you, only you, know what is best. Or surrender control to the probate court and let the intestate chips fall where they may.
Although everyone should have a Last Will, not everyone will need an inter vivos trust (living trust) or testamentary trust. Clearly, trusts can be very beneficial for many individuals and their businesses, especially for tax planning, preserving wealth, and charitable giving.
Every trust has a purpose and should be carefully tailored to the circumstances. The level of complexity and cost associated with drafting a trust instrument is tied directly to what it is intended to accomplish. A simple trust agreement to fund college tuition might be 10 pages. A complex business trust could be 100 pages. What is the purpose of the trust?
People create trusts for a myriad of reasons. A special needs trust for a disabled child. A college trust fund mandated by the divorce decree. Estate and gift taxes can be minimized with a tax avoidance trust. A business succession trust can pass the enterprise to the next generation. Consult an attorney with a substantial estate planning practice on whether a trust is best suited to carry out your intentions. If yes, then consider including a trust in your plan.
Not having a trust that could have avoided negative tax consequences would be a costly mistake, especially for high net worth estates and business owners. Preserving wealth for your retirement years and beneficiaries is accomplished through a variety of trust provisions. A trust can reduce estate taxes and gift taxes. A trust may also avoid probate proceedings, allowing the trustor (donor or settlor) to determine how assets should be distributed and to whom.
If you die intestate without a Last Will or trust to carry out your last wishes, then the probate judge will apply Arizona’s intestate law. Your surviving spouse and children, and any other heirs, will need to resolve any disputes in the courtroom. Each may need to hire an attorney. Attorney’s fees, costs of estate administration, length of time it takes to distribute assets and then close the case are all likely to increase dramatically. Isn’t it far more sensible to clarify and formalize your intentions in an estate plan?
Doing nothing, leaving these important matters to grieving heirs, often results in very hard feelings that divides families, sometimes for decades or generations. Why create a situation that could result in a family feud?
What if you become ill or incapacitated? Part of estate planning is addressing existing medical issues and preparing for emergencies before they happen. These are some of the issues you can resolve in advance with your estate plan:
The larger your estate is, the more beneficial it is to protect assets from unnecessary estate taxes. You may not have a substantial estate today, but you are probably building your asset base to achieve important objectives for yourself and your family. To provide for a comfortable retirement. To save for your child’s college tuition. To plan for your surviving spouse’s living expenses. At every age and stage of life, there are always events and circumstances to plan for.
Minimizing your tax burden is another important aspect of estate planning (often sufficient for the plan to pay for itself). There are plenty of reasons why reducing your tax burden is good estate planning. Furthermore, tax laws are always changing. What is not taxable today, may very well be taxable in the near future. Work with an estate planning attorney you trust. One who diligently keeps you apprized of new estate and gift tax laws so that your plan remains current and relevant.
Yes, that is also possible. Important decisions need to be made regarding the family business and, as a principal, you are the one who knows what is best. Do you want your spouse, your children, and your grandchildren to expand on the enterprise you built or inherited? Minimizing estate taxes is an important objective, as with family farms, for example, and organizations with substantial real estate holdings. If the tax burden is too high, then the family business may have to be sold or liquidated to pay the taxes owed. Most of us can agree that should be avoided whenever possible. An estate planning attorney who has ample experience with family business succession can make recommendations on how best to structure the business. And advise on planning for succession so the operation continues without disruption after the principal’s death.
In dispelling a few myths, we touched on the more common misconceptions people have about estate planning and why obtaining specific legal advice is essential. Fill-in-the-blank forms downloaded from some obscure website may seem like a cheap alternative, but it may also be a recipe for disaster. Do not invite an estate contest and probate litigation because your donative intent is unclear, there are ambiguities, omitted heirs, allegations of coercion or undue influence, or the operative provisions are defective and unenforceable.
Estate planning is about goal-setting and obtaining peace of mind. It’s about using Arizona laws and federal laws to carry out one’s intentions. It’s about implementing the desired estate plan through various legal documents. All of this must be accomplished in a way that assures proper legal interpretation and enforceability should a dispute arise. When it comes to estate planning, experience in the law matters. Call the Arizona Law Group today and arrange to consult an estate planning attorney with our amazing legal team.