Myths About Estate Planning In Arizona
In my experience, many people are uncomfortable speaking about their end-of-life decisions, including their estate planning. This is understandable, as we all want to believe that we have plenty of time to make these plans. It’s also an uneasy topic to broach with your loved ones, but it’s absolutely necessary to have this conversation in order to prevent any future estate disputes. After all, you can’t take it with you, so you will want to clearly define how you want your life’s work to continue to benefit the people and causes you love after you pass.
There are numerous myths that you should keep in mind when you’re getting started with the estate planning process. Unfortunately, many people believe these estate planning myths to the eventual detriment of their estate and family. I often hear many of these myths when my clients ask me questions during our consultations. These questions typically include the following estate planning myths:
Is Estate Planning Only for Wealthy Families?
No, estate planning is not just for the wealthy. Estate planning is about so much more than just how much money you have in your bank account. It’s about making sure that:
- Your finances are taken care of if you become incapacitated,
- Your health care decisions are carried out in the way you’d like if you’re unable to make them, and
- Your children and other heirs are taken care of when that time eventually comes.
Every person should have a basic estate plan in place, regardless of their income. Yes, some estates will be larger than others, but all estates can benefit from the legal protections available under state and federal laws from the following legal instruments:
- Last Will and Testament
- Living Wills
- Power of Attorney
- Advanced Medical Directives
Estate planning is for anyone who wants to protect their assets and the financial future of their family. In the absence of an estate plan, after death, your estate will be distributed according to Arizona’s laws of intestacy. Obviously, this may not be the plan that you would have chosen for yourself. A properly drafted estate plan will replace the terms of the State’s estate plan with your own, and it’s the final gift you can give to the people most important to you.
Is A Last Will Even Necessary in Arizona?
Yes, if you want any control over what happens to the estate that you spent your life building. A Last Will and Testament sets forth your intentions about how your assets should be distributed upon your death. It’s also the first step in transferring legal guardianship to a minor child.
Think of the Last Will and Testament as the first building block for the most basic estate plan. At the very minimum, you will want to make sure you have this first building block in place; everything you do in addition (Trusts, Advanced Directives, etc.) will help build on this legal instrument, kind of like building a fortress around your assets. Everyone should have a Last Will and Testament, regardless of their net worth.
Are Trusts Overly Complicated and Expensive?
The complexity and cost of your trust will depend on your needs. Trusts can be beneficial for tax planning, business planning, charitable giving, planning for minor children, and for preserving your assets. A well drafted trust should be tailored to your specific circumstances. For example, a simple trust creating a college trust fund may only be 8-10 pages long.
Not everyone will need a trust, but it can be beneficial for those looking to:
- Avoid negative tax consequences for their business or for high-net-worth estates
- Reduce estate taxes and gift taxes
- Avoid probate
- Preserve assets for themselves or beneficiaries
- Maintain privacy (trusts are not public record)
An experienced estate planning lawyer can evaluate your current financial situation and explain your options so that you can decide if a Trust will meet your estate planning goals.
Can I Handle Drafting Estate Planning Documents on My Own?
Due to the prevalence of online estate planning documents, many people mistakenly believe that it’s easy to create your own estate plan. However, even small mistakes in your estate planning can end up costing your beneficiaries. Some of these common mistakes include:
- Not understanding how your assets will pass– Some assets, like real estate or personal items, will pass through your legal instruments (ex. Will, Trust, etc.), but other assets will pass through beneficiary designations (ex. IRA or life insurance policy). An experienced attorney can build your estate plan so that your assets pass to whom you intend, while also maximizing any tax benefits for your IRA and life insurance beneficiaries.
- Poor drafting– Failing to clearly draft your estate plan, such as not planning for future children, can have lasting consequences by leaving out potential heirs.
- Planning your estate around certain assets– Unless there is a clear reason why a person should receive a specific asset, it is generally unwise to plan around specific assets. For example, you have two children and want to treat them equally. You make one the beneficiary to your IRA while transferring your house to the other. At the time you did so, both assets were equal in value, but the housing market since crashed, leaving your home underwater. You pass before you have a chance to update your documents. Now, based on your mistake in your estate planning, your children will not receive an equal share of your estate. Working with an experienced estate planning attorney could help you avoid this type of situation by properly planning for all your assets and beneficiaries.
- Not planning for special needs– If you don’t properly plan for your minor children or children with special needs, a court-appointed guardian will most likely have to manage the assets after you pass. This costly mistake could force your assets to be managed by someone you don’t know or wouldn’t approve of.
- Failing to fund your trust– One of the most important, but sometimes overlooked steps when creating a trust, is to fund your trust by transferring ownership of your assets into the trust entity. If you don’t properly fund your trust, it may not protect or distribute your assets to the intended beneficiaries. Also, depending on the situation, certain estate tax benefits are only obtained if your trust is properly funded. Funding your trust requires a great deal of paperwork, and it would be beneficial to hire an attorney that can help guide you through the process.
There are also some serious consequences for mistakes made on poorly drafted estate plans, including:
- Court battles– Mistakes on your estate plan could cause your heirs to spend considerable time, energy, and money fighting in a court. This type of estate litigation can destroy families and create family feuds that last generations.
- Lost estate value– Assets in an estate may decrease in value due to negligence, theft, or other economic circumstances. In the absence of a well thought out estate plan, your personal representative may have trouble locating, managing, and disbursing your assets. This means that your heirs may not get the full benefit of your estate.
- Estate taxes– Mistakes on failing to adequately plan for estate taxes or failing to protect assets from taxes (by utilizing Trusts) can severely diminish the value of your estate.
- Court ordered conservatorships or guardianships– Court intervention may be required to resolve any disputes that you may have failed to properly plan for in your estate. For example, if you didn’t plan for who would make your decisions if you were to become incapacitated, your family may be divided over how to proceed (or who should be making the decisions) and be forced into a legal dispute.
There are numerous myths about estate planning on the internet. Following these myths can be very detrimental to your estate. This is why it’s always important to seek guidance from an experienced Arizona estate planning attorney.
At first glance, it may seem that you can save money by the do-it-yourself estate planning route, but this is rarely the case. Oftentimes, it can end up costing your beneficiaries more money in legal fees to correct the mistakes made on these critical documents.
The estate planning lawyers at Brown & Hobkirk, PLLC will be pleased to meet with you to learn about your circumstances and your concerns. We will answer all your questions about the estate planning process and the different options and devices that are available for protecting the people important to you.
Robert Hobkirk is a partner at the law office of Brown & Hobkirk, PLLC. He represents clients in legal matters involving trusts and estates, wills, probate law, and estate litigation, among other areas.