People often resist talking about the inevitable, and estate planning involves just that. In our experience, though, we’ve found that most clients, once they get started and put all the pieces of the estate puzzle together, are actually relieved having gone through the process. When you create an estate plan, you’ve done all you can to provide for your children and others who are close to you in the event they have to go on without you.
Here is a list of the instruments that make up the typical estate plan:
You may prepare to modify your estate plan during the divorce, but executing some of those changes before your divorce is final may violate the preliminary injunction. Keep in mind that your divorce isn’t final until the judge signs your decree, so refrain from making certain changes until that happens and discuss these matters in detail with your divorce and estate planning attorney.
Life insurance is an important component of one’s essential estate plan, especially when there are children who will need support. When spousal maintenance or child support is part of your divorce decree, you may be ordered to continue a policy or acquire a policy that maintains your ex-spouse as a beneficiary. You may choose from a number of life insurance products, including term life, variable life, and whole life.
Term life insurance policies provide coverage for a specific length of time. There is no equity or cash value, so a term life policy is not an investment tool. As you get older, or as your health diminishes, the premium generally increases or, in the alternative, the amount paid on death decreases. When it comes to cost savings, these policies may be a good option for you and easier on your insurance budget.
The variable life insurance policy is a combination of insurance and investment, and investments always involve risk. Once the money is taken out to pay the premium, the remainder is invested. For this policy to work as an investment vehicle, more money is paid by the policyholder than is needed to cover the premiums. There is a guaranteed minimum payment on death under the insurance. There is a potential that the invested portion will also provide money on death, but as with any investment, there is no guaranteed rate of return. These policies tend to be much more costly than other life insurance products.
The whole life insurance policy is a long term approach to insuring a life. The policy will provide coverage over the course of the insured’s lifetime at a set premium. Typically, the premium is paid over the duration of the policy, up until the death of the insured. If you are willing to stay with one insurance company for life, this may be an option for you.
When married, it is far simpler to avoid planning an estate because most things automatically go to one’s spouse under the state’s laws of intestate succession (see below). Planning concerns are usually limited to what happens if both parents are deceased in a common tragic event, such as an automobile accident in which neither spouse survives.
Think about this for a moment, though. If you inherit property or money before your divorce is finalized, then such an inheritance is your separate property and is not subject to division in the divorce. But how is your property distributed if you do not have a Will and you don’t survive the finalization of your divorce? This may not be what you want to hear, but your assets — community and separate — may go directly to your “surviving spouse” under Arizona’s laws of intestate succession. Furthermore, your surviving spouse would be first in line to seek probate appointment as Personal Representative of your intestate estate. The reciprocal is also true, of course, should your spouse die without a Will before the divorce is final.
When a person dies with a Will, then he or she is said to have died “testate.” The enforceable terms of the Will control the appointment of a Personal Representative (PR), the administration of the decedent’s testate estate, and the distribution to the devisees named in the Will. By contrast, when a person dies without a Will, he or she is said to have died “intestate.” Arizona’s laws of intestate succession apply to the administration of the decedent’s intestate estate and control the distribution of assets to the heirs at law. In other words, Arizona’s intestate laws determine exactly who the heirs at law are or will be.
The traditional Last Will and Testament is a written reflection of the testator’s testamentary intent. It provides for the distribution at death of the testator’s property and interests in according to his or her wishes. The Will can set age restrictions, set up testamentary trusts, name a PR and successor PR, nominate guardians, and the like.
When we say we’re going to “probate the Will,” we mean that the Last Will and Testament will be submitted to the probate division of the Superior Court and administered. Probate involves carrying out the last wishes of the testator, paying off creditors and taxes, and distributing the property to those named in the Will as devisees, or beneficiaries. The Personal Representative (PR), sometimes known as an executor, is appointed in the Will and, if he or she accepts the appointment, carries out the testator’s wishes. The PR’s duties include inventory and appraisement, notification to creditors and heirs, estate administration, paying estate obligations, and so on, until the probate process is complete and the estate is closed. More often than not, the PR is a family member. There is no requirement that the PR have any particular education, knowledge, certification, or background. Even in the best of circumstances, the PR is under a lot of pressure because of family relationships. And if this is the first time the PR has been involved in any probate proceedings, it can be very foreign and challenging.
You may have heard of the holographic Will, which if done properly is valid in Arizona. There is a certain freedom to writing one’s own Will when the mood strikes or circumstances become risky. But think again before you rely on a holographic Will for your estate plan. If the Will is found to be valid, extrinsic evidence will likely be needed to determine the terms of such an informal Will.
Whether the holographic Will is witnessed or not, the material provisions in the Will must be handwritten by the testator and the Will must be signed by the testator. The first problem with these types of Wills is that, when not witnessed, the risk of fraud is very high. How do we know that it was really the testator’s Will when the only one who can verify authenticity is permanently unavailable? The second problem with the holographic Will is that the material provisions must be handwritten by the testator. For instance, if the Will was typed and signed — then no material provisions are in the testator’s handwriting. An online fill-in-the-blank Will form can cause serious problems, too. If the material provisions of the holographic Will are a mixture of filled-in handwritten words and typed words, validity will be in question.
The best method of ensuring your last wishes are indeed carried out, that the person you selected as your PR actually gets the appointment, and to have your estate administered expediently with minimal court intervention, is to create a self-proved Will. The original self-proved Will may be submitted for informal probate, making the process much less stressful and far more efficient for your PR, your creditors, and your beneficiaries.
In general, there is no additional supporting affidavit to be filed to establish the Will’s authenticity — it is “self-proved.” As such, the Will stands on its own “four corners” — it is complete in every way and, therefore, will be accepted on its face as a true Will by the court. (This does not mean the Will cannot be challenged by an interested party, it can be.)
The requirements of a self-proved Will under A.R.S. § 14-2504 are straightforward and easily implemented.
FIRST, the testator signs and attests that the instrument is his or her Will:
“IN WITNESS WHEREOF, I, JOHN DOE, the Testator, sign my name to this instrument this 1st day of June, 2011, and being first duly sworn, do declare to the undersigned authority that I sign and execute this instrument as my Last Will and Testament, and that I sign it willingly, or willingly direct another to sign for me, that I execute it as my free and voluntary act for the purposes expressed in that document, and that I am eighteen years of age or older, of sound and disposing mind and memory, and under no constraint or undue influence.”
SECOND, two adult witnesses sign their affidavit to the Will:
“We, the witnesses, sign our names to this instrument being first duly sworn, and do declare to the undersigned authority that JOHN DOE, the Testator, signs and executes this instrument as his Will, and that he signs it willingly, or willingly directs another to sign for him, and that each of us, in the presence and hearing of the Testator, signs this Will as witness to the Testator’s signing, and that to the best of our knowledge the Testator is eighteen years of age or older, of sound and disposing mind and memory, and under no constraint or undue influence.”
THIRD, the testator acknowledges his or her signature and the Will, and the witnesses acknowledge their signatures and their affidavit, all under oath before a notary public or other “officer authorized to administer oaths.” The notary public then signs and imprints his or her official seal.
When you carry out those three formalities, the result is a self-proved Will which is the preferred form.
Each individual desiring a Will should have their own; reciprocal Wills are typical among married couples. You and your spouse may have had reciprocal Wills drafted in which the dispositive provisions were mirror images of each other.
If your Will was written, signed, and witnessed after your marriage, then your spouse was probably the person named as your first choice to act as PR of your testate estate following your death. Your spouse was probably also named as the primary devisee, or beneficiary. Given that you are in the process of a divorce, you may wish to change your Will in that regard. If you decide to amend your existing Will, then you would do so with a codicil (Will amendment). You are free to create a completely new Will, however, which revokes all of your prior Wills and codicils.
Parents frequently struggle with the decision over what age a beneficiary should be before receiving control over inherited property. Unless the estate plan provides for a different result, an 18-year-old beneficiary will be given the inheritance because he or she is an adult and adults can handle their own money as they wish. You might think it is fine if the amount is $10,000, enough to perhaps buy a good used car. But in terms of prudence, do you really want to give an 18-year-old a lump sum of $100,000 or more? Many young adults are inexperienced with money, and parents know this. One of the first things a parent wants to do is ensure that the young adult beneficiary doesn’t get all the money at once.
An easy alternative is to place the assets or funds in trust on behalf of the young beneficiary. The trust instrument has specific instructions covering when and how the trust funds will be distributed. One such restriction can require that the young beneficiary wait, and hopefully mature, before getting control of all the money placed in trust. The trust can state that the trustee will exercise control of the trust funds on behalf of the beneficiary until he or she reaches the age, for example, of 25. That is not to say that 25 is the magic age of maturity, but it is a useful benchmark for estate planning purposes.
A trust may be created for any legal purpose; each trust has a trustee who is appointed to administer that trust. Often, a trustee is a spouse. Trustees are fiduciaries who actually take title to the property placed in the trust. The trustee is responsible for investments, management, maintenance, and distribution of trust property and funds to the beneficiary or beneficiaries. Although the trustee doesn’t have to be an accountant, an attorney, or a financial planner, he or she can delegate those duties and seek assistance from legal and financial professionals when needed to preserve the trust and carry out the trust’s purposes. Ordinarily, a trustee may be removed without the need to revoke the trust. The trust continues under the substitute trustee.
A trust can be created and funded during one’s lifetime — referred to as an inter vivos trust, or living trust. A trust may also be a testamentary trust, meaning that it is funded by a provision in the Last Will and Testament making the trust provision effective at the time of the testator’s death. Depending on your estate planning objectives, one or both of these trusts may be useful to you.
Preparing an estate plan while your divorce is pending may seem like an impossible task. You may be tempted to put if off until everything has quieted down, until the kids are back to school, until you find a new apartment, and so on. Avoidance and delay will only make the task seem more burdensome than it really is. And there is the risk that you will run out of time, and it will be too late. Your family law attorney and a good estate planning attorney can work together to make sure that you are fully protected, so start reviewing your current estate plan for needed updates and get the legal advice you need.
The power of attorney creates an agency relationship between two persons — the person who delegates authority to do specific things is the principal. The person who is given the authority to act on the principal’s behalf is the agent, or “attorney in fact.” The principal-agent relationship involves a very high degree of trust and the agent is a fiduciary. Furthermore, a power of attorney only operates during the principal’s lifetime, the agent’s authority ends with the principal’s death. That is the point at which the Last Will and Testament is effective and the appointed Personal Representative (PR) administers the testator’s estate. The same person who served as agent under a power of attorney could very well be the PR serving under the Will.
Powers of attorney come in two basic forms: “general” and “limited.” Married couples typically include both of these powers of attorneys in their estate plans. When a power of attorney is made “durable,” the authority that the principal granted to the agent continues even after the “principal is subsequently disabled or incapacitated.” A.R.S. § 14-5501.
The general power of attorney gives the agent the authority to step in and take control of the principal’s finances, which means buying and selling property, paying debts and obligations, investing, and much more. The general power of attorney is a very powerful instrument, and those financial powers should be cautiously delegated.
An agent may face criminal sanctions for violating the fiduciary responsibilities owed to the principal. An agent under power of attorney cannot receive any benefits from the principal unless those benefits are specifically written into the instrument. Otherwise, the agent could be subject to criminal prosecution or subject to penalties, including the loss of the agent’s right to inherit from the principal, damages, and attorneys’ fees.
Now that your divorce is pending, if your spouse is your agent under a general power of attorney, then you may wish to revoke that appointment.
A power of attorney may be limited, or restricted, to the performance of specified acts. Probably the most recognizable example of the limited type is the healthcare power of attorney. As you would expect, couples frequently appoint each other as their healthcare power of attorney, so this is another change that you should consider in light of your divorce.
Under the healthcare power of attorney, the principal delegates authority to make healthcare decisions to an agent. The agent’s authority is restricted to healthcare matters, and limited to making decisions when the principal is incapacitated or unable to make those decisions for himself or herself. These can be life and death decisions. The agent steps in and takes over the decision-making for medical care, signs consent forms, allows and disallows medical treatment and surgical procedures.
When a principal appoints another as agent for healthcare purposes, a living will is often coupled with the healthcare power of attorney. (A living will is unrelated to the Last Will and Testament.) The living will is a directive from the principal to the agent — the instructions that the principal wants the agent to follow. If there is an accident, for example, and the principal is injured and in a coma, the agent looks to the living will for guidance on treatment options in keeping with the principal’s wishes. If you create a healthcare power of attorney, it is recommended that you also include a living will with your directives.
If you should die without a Last Will and Testament, then the laws of the State of Arizona control the disposition of your estate. So in a way, even if you have no formal estate plan, there is an Arizona plan in place for you already. The question is whether you like the result that intestate succession brings, or if you prefer to make your own decisions regarding the distribution of your property and the appointment of your Personal Representative.