This was a column in a local paper that got me thinking that this is actually a very commonly asked question. First, it doesn’t all go the State. It may but this is very unlikely.
Basically, the State of Arizona has written a Will for you if you fail to do one yourself. If your wishes are not the same as the one written into statute, you will need to do a Will, or a Revocable Trust, to spell out your own wishes.
The State’s “intestacy” statute basically states your estate will go to your spouse if you have children that are also the children of your spouse. Otherwise, it is divided between your spouse and children from a prior marriage. If you are unmarried and without children, to your parents, and so on.
If you have remarried, a blended family, have a significant other or have other heirs you want to leave part of your estate to, you need to overcome this statute by creating your own Will or Revocable Trust. It is actually quite simple to do.
Kevin P. McFadden
Knollmiller & Arenofsky, LLP
Self directed IRAs (SDIRA) have been around since the early 1970s. In spite of their history, they haven’t been all the rage until more recently thanks to media attention. The biggest press was on former Republican candidate Mitt Romney’s SDIRA. It shouldn’t be believed that only the most wealthy can use SDIRA as part of their total retirement financial and estate planning.
SDIRA give everyone more control and investment options vs. regular IRAs. This is due to the individual being able to control the investments instead of a brokerage firm or bank. More than just being in control of the IRA, the SDIRA permits a whole lot of investments options instead of just traded securities. Examples include real estate, private equities, precious metals, and much more.
Not all is rosy with SDIRA. The assumption is that the manager of the IRA, the individual investor him or herself, needs to have some experience in the investments they are managing. Too often a manager or adviser is hired to assist the individual on the investments. This is an added cost.
Further drawbacks on tax and legal regulations. Provisions against self-dealing and avoiding too much involvement in the operation of a business are just a couple of the potential pitfalls.
SDIRA can be a part of a person’s financial and estate planning but care should be taken before taking hold of the wheels of this type of IRA.
This question usually gets asked by the family after a loved one has died and they are told they have to go through probate. How did this happen?
Yes, one of the benefits of a revocable trust is avoiding probate. The explanation everyone has heard is because the assets are held in trust there isn’t an estate to be probated. Instead, the successor trustee can access, get under control, liquidate and ultimately distribute the estate to the trust beneficiaries. So, if this is what is suppose to work, what went wrong? These are the most common cases of probates in spite of a revocable trust being in place:
Refinance. Very often when a client has a house in a trust decides to refinance the mortgage, the house gets transferred out of trust in order to make the financing go through. Too often the title company will transfer the property out but never takes any steps to transfer the house back in or even remind the owner that the house needs transferred back.
IRA or Insurance Beneficiary dies. If you have named a beneficiary of your IRA or life insurance and they die, often the contract states it will be paid to your “Estate.” This often means probate.
Leaving checking or investment accounts and vehicles out of trust. While you can have up to $75,000 outside of trust and not go through probate, sometimes accounts do not get titled in the name of the trust. If the total non-trust assets exceed $75,000, you may be in probate.
Mortgages. While a house may be in the trust, and therefore avoid probate, if you have to work with a lender, you will need to have an executor appointed to represent the decedent in all dealings with the lender. The same may apply to other debts or the IRS.
Of course most of these can be avoided with just being mindful that most assets need to be titled in the name of the trust.
Conservatorship is a court proceeding where an individual is considered by a judge to be unable to manage their own financial affairs so another person or entity is named to handle it for them. There are many reasons why a conservatorship may be needed; disability, dementia, youth, incapacity, and more.
The process can be costly, requires an annual accounting, court hearings, and in some unfortunate instances completely uses up the entire estate of the person it was intending to protect.
Powers of attorney work in some instances but have proven to not be a guaranteed solution. For example, title companies will not accept a power of attorney to sell real estate unless the document specifically mentions the power to sell the very property in question. Another example are IRAs. Normally the brokerage firm will not permit an agent under a power of attorney to exercise some powers unless the power of attorney specifically states retirement accounts AND lists that the agent can do the very thing it is trying to accomplish. The final example of a power of attorney problem is the age of the document. Sometimes a company will not accept an older power of attorney even though the statutes say the documents do not expire.
The other tool to deal with conservatorship is a trust. By placing assets in the name of the trust, the person has more assurance that if down the road they become unable to manage their own financial affairs, the next successor trustee can act on behalf of the assets. For example, let’s say I I own a piece of black acre and place it in my trust. Years down the road I develop dementia. My successor trustee that I named in my trust can sell my share of black acre, rent it, or handle it as if I were able to act on my own behalf. No power of attorney is needed.
If you have any questions about conservatorships, please give us a call at 480-345-0444.
Kevin P. McFadden, Attorney at Knollmiller & Arenofsky, LLP
Avoidance of probate. In particular, a revocable living trust can avoid expensive multiple probate proceedings when you own real estate in several different states, as well as the publication of the otherwise private financial details of your estate.
Avoidance of conservatorship. A revocable trust can avoid the additional cost of a conservatorship in the event of your incapacity.
Efficient distribution. A revocable trust can reduce delays in t istributing your property after you die, although delays caused by filing an estate tax return cannot be avoided.
Confidentiality. Generally the terms of your living trust are confidential, with only your named beneficiaries and trustee having access to that information.
Continuity. A trust can provide continuity of management of your property after your death or incapacity.
Disadvantages of a Revocable Living Trust
Expenses of planning. A revocable living trust can be a little more complicated than a will to draft, and asset transfers can take time and can result in additional costs.
Expenses of administration. If you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). Of course if you do not use these services, this additional expense will not apply. Setting up a revocable living trust will not eliminate the need for professional services of attorneys and accountants in the future.
Inconvenience. Once the trust is established, you must be sure that trust books are maintained and that all assets continue to be registered to the trustee. Again, this is not a large issue but certainly is something to consider.
Unforeseen problems. Revocable living trusts can raise a variety of new problems regarding the ability to borrow against property, title insurance coverage, real estate in other countries, Subchapter-S stock, certain pension distributions, and many other issues. Only a skilled attorney familiar with estate planning can tell you whether, on the whole, a revocable living trust is right for you, your family and your assets.
In this author’s opinion, the advantages far out weight the disadvantages
This is based on an posting by the Oregon State Bar
This question gets asked a lot. Sometimes it is asked if the Feds or Arizona tax you when you die? Sometimes it is asked if the State gets part of your estate when you die? Mostly it is thought of in terms of probate whether you have a Last Will & Testament or not.
The short and simple answer for almost everyone is zero, the Feds and Arizona gets absolutely nothing when you die. Of course there are exceptions, but they are very limited.
One exception is if your total estate is over $5,250,000 at least for year 2013. If a married couple have done proper estate planning they can pass $10,500,000 this year estate tax free. And no, the State of Arizona does not have an inheritance or death tax. Some states do but Arizona does not.
Another exception is if you do not have a Will or Trust and you have no heirs. This means no parents, children, spouse, nieces and nephews, cousins, etc. Very rare, but possible. If this is the case, the State of Arizona takes the entire estate.
Another exception, but I don’t really think this should be thought of as an exception but basic taxation, is that if you have any assets that are pre-tax, for example an IRA, then when the funds are distributed, they are subject to income tax as they would have been if the person was still alive.
So in answer to the question, no, the Feds and the State of Arizona will very unlikely get a piece of your Estate. Of course this doesn’t mean your Estate will go where you want it to without careful estate planning. That is a subject of another post.
The “typical” client 20 years ago was very concerned about ending up in probate after their passing. I am not sure if this came from all the advertised estate planning seminars that used this to scare people into living trusts, or more accurately stated, buying their financial products. Probate is certainly still a concern for many clients, which in this writer’s opinion isn’t the terrible process it is made out to be. The bigger concern now is a client’s possible dementia or incapacity in later years.
This is certainly an advantage of a trust over a will. The assets held in trust and an excellent power of attorney for the day to day financial matters are a great way to take care of each individual in later years. If one happens to be unable to care for their own self, their successor trustee and agent under the power of attorney can almost always take care of all their financial matters without court action, conservatorship or governmental involvement.
Another trend in Living Trusts, or better said, Estate Planning, are IRA Qualified Trusts. Very often a individual does not want to leave a large IRA to their children or other heirs. The concern is they will cash it in and pay the large tax bill that will surely come when the IRA is liquidated.
One popular option is a special trust that can be the beneficiary of the IRA or other qualified plan. The trust can restrict the distribution of the IRA to over the life expectancy of the loved one. In essence, the heir can have the IRA, enjoy the benefit of the IRA but can only access the IRA over the number of years of their life expectancy. This is a good option for someone that may not be very wise with money or money management.
Note that your basic living trust may not accomplish this same goal and a special IRA trust is required.
If you have any questions, please give us a call at Knollmiller & Arenofsky, LLP.
So what are the trends in Living Trusts and Estate Planning? The next few blog posts will tell you a little about what is new.
Grandpa and Grandson (Photo credit: Tobyotter)
The biggest trend is “I want to protect my child’s inheritance.” Can you imagine leaving your hard earned estate to a child when you die and they get into a messy divorce, lawsuit or they just spend it unwisely and lose everything? What a waste. What if you could leave everything for the heir but still protect all the money from their creditors and that heir’s own bad judgment? You can. It is called a spendthrift trust and in Arizona and many states, that child’s creditors and spouses cannot go after it other than in very limited circumstances, child support being one. The heir is also prevented from wasting the funds since it is intended to be available to them for their lifetime. One case we had a trust beneficiary of a $250,000 distribution spend the entire amount in 9 months, the largest expense was the rental of a Cadillac Escalade.
No, a Will by its very nature implies Probate. Probate is a procedure to administer the estate of a decedent. Even if you do not have a Will, your estate will be administered according to the laws of your home state. This procedure for estates that do not have a Will is called Intestate. To avoid probate, a Trust is the recommended estate planning tool.