2016 Guide to
Estate Planning
Wills, Trusts, Asset Protection and More
Estate Planning is
crucial if you want to
control how your assets
are given to the people
or organizations you
care most about.
What is Estate Planning?
Estate planning is the process of making a plan in advance and naming whom you want to receive the things you
own after you die. However, good estate planning is much more than that including anticipating and arranging,
during a person’s life, for the disposal of their estate. Estate planning can be used to eliminate uncertainties over the
administration of a probate and to maximize the value of the estate by reducing taxes and other expenses.
Many people may not think that they have an “estate” but they do. In fact, nearly everyone does. Your estate is
comprised of everything you own— your car, home, other real estate, checking and savings accounts, investments,
life insurance, furniture, personal possessions. No matter how large or how modest, everyone has an estate and
something in common—you can’t take it with you when you die.
Why do I need to do Estate Planning?
Estate Planning is crucial if you want to control how your assets are given to the people or organizations you care
most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to
receive something of yours, what you want them to receive, and when they are to receive it. You will, of course,
want this to happen with the least amount paid in taxes, legal fees, and court costs.
A Good Estate Plan should:
•
Include instructions for passing your values
(religion, education, hard work, etc.) in addition
to your valuables.
•
Include instructions for your care if you become
disabled before you die (POA).
•
For your minor children, you will need to name
who will take care of them (guardian) and who
will manage their inheritance (conservator).
IBC Law • 2016 Guide to Estate Planning
•
Provide for family members with special needs
without disrupting government benefits.
•
Provide for loved ones who might be
irresponsible with money or who may need
future protection from creditors or divorce.
•
Include life insurance to provide for your family
at your death, disability income insurance to
replace your income if you cannot work due to
illness or injury, and long-term care insurance
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to help pay for your care in case of an extended
illness or injury.
•
Provide for the transfer of your business at your
retirement, disability, or death.
•
Minimize taxes, court costs, and unnecessary
legal fees.
•
Be an ongoing process, not a one-time event.
Your plan should be reviewed and updated as
your family and financial situations (and laws)
change over your lifetime.
Power of Attorney documents: Title 14 of the Arizona
Statutes contains the laws that allow you to name an
agent in a power of attorney form (POA) to handle
your personal and/or business affairs when you’re
unable to. Your named agent is also called an attorneyin-fact, and you are referred to as the principal or
grantor. By having a POA, you can delegate important
matters to another when needed, and avoid having
to undergo a time-consuming and expensive
guardianship process in court.
IBC Law • 2016 Guide to Estate Planning
•
A durable power of attorney form is one that
stays effective even if you later become mentally
or physically incapacitated. You must state in the
document that it won’t be affected by a future
disability, incapacity, or passage of time in order
to create a durable POA. Otherwise, if you
have an accident that renders you unconscious,
develop dementia, etc., the form will be voided
and your named agent’s authority lapses.
However, you can also create a nondurable
document, such as a limited power of attorney,
which is used for a specific transaction, such
as selling a vehicle, home, or handling another
financial transaction. Arizona Statutes 14-5501
•
The form will be effective when you sign it,
unless you state that it takes effect only upon
your disability or incapacity. Arizona Statutes
14-5501
•
If you wish to grant authority to make financial
decisions to your named agent, you must have
it witnessed by someone other than the agent,
your spouse, the agent’s children, or the notary
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public. In addition to the witness statement and
signature, it must signed before a notary public
in the required format. There are exceptions
to these requirements when the agent isn’t a
natural person, or the POA is made as part of a
contract and is given as security for money or for
the performance of an important act. Arizona
Statutes 14-5501
•
•
You must sign power of attorney forms of
your own free will, a clear mind, and with
an understanding of the legal effect and
consequences. Intimidating or deceiving a
person into signing a POA form is a crime.
Arizona Statutes 14-5506
If you wish to terminate the agent’s authority,
you should give written notice to the agent that
you’re revoking the document. Otherwise, the
agent’s acts taken without awareness of the lapse
of authority will be deemed legally effective.
Arizona Statutes 14-5504
IBC Law • 2016 Guide to Estate Planning
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Probate: What is Probate and
why you want to avoid it.
Probate: Court monitored process for distributing
your assets after your death if you die with or without a
Last Will.
Why you want to avoid Probate:
The main reasons you want to avoid probate is that it
is a very slow process, (9 – 12 months if uncontested).
It can be very costly ($2,500.00 or more if you hire
an attorney) and it is a public process, so all of your
information can be found by anyone.
1. Probate can be time consuming. Probate is a
process controlled by the courts and it proceeds
very slowly. While it can be completed in as
little as six months, probate typically takes
approximately one to three years. It can take even
longer if the estate is a complicated and one or
more of the heirs are fighting over your assets.
Three years can be a very long time to wait for
your assets to be dispersed back to your family.
2. Probate can be expensive. The filing fees and
administrative costs alone typically range from
$500.00 to $1,000.00. If an attorney is hired
to draft the paperwork and assist your heirs
through an uncontested probate, they typically
charge another $1,500.00 to $3,000.00 depending
on how much time is needed for your case.
IBC Law • 2016 Guide to Estate Planning
Finally, if the probate is contested, the legal fees
will increase considerably. Depending on how
much time is spent by the attorneys, these fees
can be an additional $5,000.00 to $50,000.00 or
more.
3. Probate is public. Since probate is handled by
the court system, all of the documents and
information used in the probate process become
part of the public record. Not only are the
debts and the assets of the estate made public,
so too are the distributions made through the
probate. This means that creditors of your heirs
can discover what they will inherit and use
your money to pay off their debts. This sort of
publicity can make people targets for burglars
or scammers.
So what do I do?
The most straightforward way to avoid probate is
simply to create a living trust. A living trust will ensure
your assets are passed to your heirs privately, with the
least possible expense.
What most people don’t realize is that a living trust
is merely an alternative to a will. Unlike a will, which
merely distributes your assets upon death, a living
trust places your assets and property “in trust” which
are then managed by a trustee for the benefit of your
beneficiaries. The biggest benefit is that a trust allows
you to avoid probate entirely because the property and
assets are already distributed to the trust.
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Definitions 1: Most Common Features of an Estate Plan:
Trust: A living trust is the main way to avoid probate. One of the purposes of probate is to determine
who receives the property you leave at death. Since the trustee of your living trust owns that property,
there is no need for probate.
Will: A will is a legal declaration where a person names one or more people to manage his or her estate
and provides for the distribution of his or her property at death, but keep in mind that a will must go
through probate.
An estate plan begins with a will or living trust.
A will provides your instructions, but it does not avoid
probate. Any assets titled in your name or directed
by your will must go through your state’s probate
process before they can be distributed to your heirs.
(If you own property in other states, your family will
probably face multiple probates, each one according
to the laws in that state.) The process varies greatly
from state to state, but it can become expensive with
legal fees, executor fees, and court costs. It can also
take anywhere from nine months to two years or
longer. With rare exception, probate files are open to
the public and excluded heirs are encouraged to come
forward and seek a share of your estate. In short, the
court system, not your family, controls the process.
reflect your love and values to your family and future
generations.
Unlike a will, a trust doesn’t have to die with you.
Assets can stay in your trust, managed by the trustee
you selected, until your beneficiaries reach the age you
want them to inherit. Your trust can continue longer to
provide for a loved one with special needs, or to protect
the assets from beneficiaries’ creditors, spouses, and
irresponsible spending.
A living trust is more expensive than a will, but it can
avoid court and lawyer involvement at incapacity and
death. Considering the hefty expense of probate, most
people consider it a bargain.
Not everything you own will go through probate.
Jointly-owned property and assets that let you name a
beneficiary (for example, life insurance, IRAs, 401(k)
s, annuities, etc.) are not controlled by your will and
usually will transfer to the new owner or beneficiary
without probate. But there are many problems with
joint ownership, and avoidance of probate is not
guaranteed. For example, if a valid beneficiary is not
named, the assets will have to go through probate and
will be distributed along with the rest of your estate.
If you name a minor as a beneficiary, the court will
probably insist on a conservatorship until the child
legally becomes an adult.
For these reasons a revocable living trust is preferred
by many families and professionals. It can avoid
probate at death (including multiple probates if you
own property in other states), prevent court control
of assets at incapacity, bring all of your assets (even
those with beneficiary designations) together into one
plan, provide maximum privacy, is valid in every state,
and can be changed by you at any time. It can also
IBC Law • 2016 Guide to Estate Planning
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What could go
wrong!?
What could go wrong
if I don’t have a Will or
Trust in place:
If it is important to you
that all of the things
you have worked hard
for go to the right
people, you must have a
Will or Trust in place.
Here are a few
examples of people who
died intestate with no
Will or Trust:
Jimi Hendrix
Although Jimi Hendrix died in 1970, the battle over his estate raged on for
more than 30 years for one simple reason: Hendrix left no Will or Trust
regarding distribution of his estate. To complicate matters, the estates of
musicians and other artists often continue to generate money long after
their deaths.
Bob Marley
Like Jimi Hendrix, Bob Marley’s estate continues to generate significant
revenue despite the fact that Marley died in 1981. Also like Hendrix, Bob
Marley died intestate even though he knew he had cancer for nearly 8
months before his death. His estate, worth a reported $30 million, had
dozens of claimants.
Salvatore Phillip “Sonny” Bono
Sonny Bono “the politician” died an untimely death in a skiing accident in
1998, but why he died without a will or trust is something we’ll never know.
Instead of staying at home to grieve, his widow Mary Bono headed to the
courthouse to be appointed the estate’s administrator. Ex-wife Cher showed
up on the scene as a claimant in Bono’s estate and a “love child” surfaced
soon thereafter making the situation even more difficult. Stieg Larsson
Swedish author Stieg Larsson who wrote many books including The Girl
with the Dragon Tattoo, died in 2004. Like many others, Larsson died
without a will or trust and Swedish law dictated that Larsson’s estate was to
be divided up between his father and his brother. His lifelong partner of 32
years, Eva Gabrielsson, received nothing, although the family did grant her
ownership of the couple’s apartment.
Howard Hughes
Howard Hughes was an eccentric billionaire who died in 1976 at the age
of 70. When he died, his will was discovered at the headquarters of the
Mormon Church in Salt Lake City. The will, however, was proved to be a
forgery in a Nevada court and his estate was divided among his 22 cousins.
Here is an example
of a normal
family dealing
with the death of
a mother passing
unexpectedly with
no Will or Trust:
My mother died unexpectedly on April 2, 2006. She never had a will or
a trust in place, and no one ever really worried about it. Her only asset
was our childhood home, and my sister and I were her only children. We
believed we would split the ownership of the house equally.
Only, things got a lot more complicated after Mom’s death.
My sister and her twelve-year-old daughter were living in the house
when Mom died. My sister was coming off a period of unemployment in
California as a single mother. She had no money. She didn’t even have a
bank account. She had just gotten a great job at Proctor and Gamble and
was getting back on track after her years in California, which had drained
her.
IBC Law • 2016 Guide to Estate Planning
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I was hit for a lot of estate expenses the moment that
Mom died. I paid for her funeral, and I advanced the
estate money to pay delinquent property taxes, some
outstanding bills, and the mortgage on Mom’s house.
I couldn’t borrow money against Mom’s house (it
was owned by the estate, not me), so I had to pay the
expenses from my personal assets.
My sister and I worked out a deal. When the estate
settled, we would get an appraisal and I would buy
the house at the appraised cost. After I mortgaged the
house, I could get back the money I had advanced to
the estate. Her share of the house equity would give
her cash to rent the house from me until her daughter
graduated from high school. That would give her time
to save up and buy the house from me and keep it in
the family.
We never wrote anything down, but we trusted each
other, and it seemed like a good plan. And it was -until my sister fell down a flight of steps and died in
October 2006. She did not have a will, either.
I knew she had a minor child and an adult son. What I
didn’t know was that she still had a husband.
She had been married to this man for several years, and
her younger child was his. However, she had told us
IBC Law • 2016 Guide to Estate Planning
she had divorced him several years earlier. They didn’t
live together and, for most of that time, she had lived in
California and he had lived in Cincinnati.
He came to her funeral, which I had arranged and paid
for, and though he said hello, we didn’t really talk.
Two days later, he had a lawyer file papers asking that
he be named the estate administrator.
I hired a lawyer and found another to represent my
nephew (he had a different father), saying that my
nephew should administer her estate.
After exhaustive research, it turned out my sister and
her husband never filed for divorce. Thus, under the
law, her husband was entitled to half of my sister’s
estate. My nephew and niece would split the other half.
Since Mom’s estate had not settled, it also meant that
her estranged husband and his lawyer (after several
rounds in court, he and my nephew were named as coadministrators) suddenly became involved in decisions
regarding my mother’s estate. Also, my niece was a
minor, and a guardian ad litem had to be appointed to
protect her interest. The guardian ad litem (an attorney
appointed by the court) also had to sign off on decisions
about Mom’s estate.
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It was a tedious and expensive mess.
The only way to reach a solution was to put my
childhood home on the market. I advanced another
chunk of money to get it fixed up for sale. Since the real
estate market was dropping, the house was slow to sell,
and every time we wanted to change the price, it had to
go through the round of lawyers and interested parties
for approval. An offer early in 2007 was turned down.
That offer turned out to be more than what the house
finally sold for in December 2007.
The arguing back and forth caused a rift in the family
over very little money. By the time the lawyers and
other expenses (I got back the money I advanced) were
paid, my share of my mother’s estate was a small sum
and my sister’s estate received the same.
A bill from an attorney came in after Mom’s estate had
settled. I was so tired of dealing with everything that I
paid it myself rather than reopening the estate. Thus, I
lost money on the overall process.
IBC Law • 2016 Guide to Estate Planning
The person who got the most money from my mother’s
estate was my former brother-in-law. My sister’s estate
received half of Mom’s money, and he received half of
my sister’s estate. My nephew and niece split the other
half of her estate.
My mother doted on her grandchildren, especially
my sister’s children, who had lived with her for part
of their childhoods. She would not have wanted
my brother-in-law to get that money instead of her
grandchildren. And preventing that from happening
would have been easy and inexpensive.
My family’s series of events was unusual, but unusual
things happen every day.
Involving a lawyer would have solved most of the
problems. If my sister and, especially, my mother had
had simple wills or trusts, the process would have been
smoother and the money would have gone to the right
people.
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Definitions 2: Additional Components:
Assets: Any valuable thing or property owned by a person or entity, regarded as being of value.
Beneficiary: A person or entity who receives property or assets according to a will or trust.
Liable: Responsible by law; to be held legally answerable for an act or omission.
Trustee: A person given control of property according to a trust.
Settler / Grantor / Trustor / Trustmaker: A person who creates the trust.
Testator: A person who has made a will or who dies with a will.
Pour over Will: A will that decrees that all assets belonging to the Testator transfer into his or her trust
immediately upon death. A pour over will transfers, or “pours,” any property belonging to an individual at the
time of his death into his existing trust. Assets transferred under a pour over will are still subject to probate,
however, unlike the assets already in the trust at the time of the individual’s death.
Intestate: The condition of the estate of a person who dies owning property whose value is greater than
the sum of their enforceable debts and funeral expenses without having made a valid will or other binding
declaration.
10 most common types of Trusts:
•
Living (or Inter Vivos) Trust / Revocable Trust:
A trust that is created and takes effect during
your lifetime. Often these trusts are designed to
be “revocable,” so that you maintain the ability
to remove property from the trust during your
lifetime. Allows you to retain control of all the
assets in the trust, and you are free to revoke or
change the terms of the trust at any time.
•
Irrevocable Trust: A trust that cannot be altered
or terminated by you once created. In most
states, trusts are presumed irrevocable unless
otherwise stated. The assets in it are no longer
yours, and typically you can’t make changes
without the beneficiary’s consent. But the
appreciated assets in the trust aren’t subject to
estate taxes.
•
Testamentary Trust: A trust that is included
under the terms and conditions established in a
will and takes effect when you die.
•
Asset Protection Trust: A trust designed
specifically to protect assets from your heir’s
creditors.
IBC Law • 2016 Guide to Estate Planning
•
Special Needs (or Supplemental Needs) Trust:
A trust established to provide supplemental
income for a disabled person who is receiving or
may be eligible to receive government benefits.
Ordinarily an inheritance or receipt of a gift
could reduce or eliminate a person’s eligibility
for government benefits. Special Needs Trusts
work around this issue by expressly prohibiting
distributions for food, shelter, or clothing.
•
Dynasty Trust: A generation-skipping trust
designed to minimize taxation of great
family wealth as it is passed on to subsequent
generations. Well-defined distributions can allow
for bypass of estate taxes for many generations to
come.
•
Charitable Trust: A trust established to benefit a
particular charity or the public. Charitable Trusts
are often used to lower or avoid imposition of
federal estate and gift taxes.
•
Pooled Trust: A trust arrangement where
multiple beneficiaries “pool” together their trust
resources into an umbrella trust account for
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investment purposes. Each beneficiary maintains
access to their own funds through a “subaccount.” Pooled Trusts are generally established
and maintained by non-profit organizations.
•
•
Implied Trust: A trust imposed by a court as an
equitable remedy, usually to return property that
was unlawfully obtained (Constructive Trust) or
erroneously transferred (Resulting Trust) back to
the settlor.
Spendthrift Trust: A trust that prevents the
beneficiary from selling or pledging away
his interests in the trust. Spendthrift Trusts
are beyond the reach of the beneficiaries
creditors, until such time as the trust property
is distributed and placed in the hands of the
beneficiary.
Requirements of a validly
executed Trust:
When creating a valid Trust you must make sure you
know the following:
•
The name of the person creating the trust (called
the grantor, settlor, or trustor). If it’s your trust,
that’s you.
•
The name of the person who will manage the
trust (the trustee). Again, if it’s your trust, this is
you. That’s right, the same person creates it and
controls it.
•
The name of the person who will take over as
trustee and distribute property in the trust when
the trustor dies or becomes incapacitated (the
successor trustee). Most people choose a spouse,
grown child, or close friend.
•
The names of the people who will receive the
property in the trust (your beneficiaries, just as
with a will).
•
The name of a person to manage any property
left to young beneficiaries.
Once the trust is drawn up, you will need to sign it
in front of a notary public. Finally, to make the trust
effective, all property to be distributed under its terms
must be transferred into the name of the trustee using
a deed or other standard transfer document.
IBC Law • 2016 Guide to Estate Planning
In Arizona, The Arizona Trust Code can be found in
Title 14 Chapter 11.
Title 14-10402. Arizona Requirements for Trust
Creation
A. Except as provided in section 14-5409, a trust is
created only if all of the following are true:
1. The settlor has capacity to create a trust.
2. The settlor indicates an intention to create the
trust.
3. The trust has a definite beneficiary or is:
(a) A charitable trust.
(b) A trust for the care of an animal, as
provided in section 14-10408.
(c) A trust for a noncharitable purpose, as
provided in section 14-10409.
4. The trustee has duties to perform.
5. The same person is not the sole trustee and
sole beneficiary.
B. A beneficiary is definite if the beneficiary can be
ascertained now or in the future, subject to any
applicable rule against perpetuities.
C. A power in a trustee or other person to select a
beneficiary from an indefinite class is valid. If
the power is not exercised within a reasonable
time, the power fails and the property subject
to the power passes to the persons who would
have taken the property had the power not been
conferred.
We would love to talk with you about
how creating a Trust can benefit you
and your family. Please contact our
Law Firm directly and we will be
happy to offer you a complimentary
phone consultation.
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Mathew Holm
IBC Law Firm
2375 E. Camelback Rd.
Phoenix, AZ 85016
310-570-3071
Jeff Lynch
IBC Law Firm
2375 E. Camelback Rd.
Phoenix, AZ 85016
602-840-4101