Estate Planning — Frequently Asked Questions
What is estate planning?
Estate planning allows you to organize your affairs during your lifetime to provide for yourself and your heirs following your death or incapacity. Legal Arizona documents including Will, Trust, Financial Power of Attorney and Advanced Health Care Directives are used in the process. An estate plan takes into consideration many issues such as unique family dynamics, estate tax reduction and estate liability. When an estate plan is properly documented, it allows for the orderly management of assets in the event of incapacity or death and the efficient and cost effective disposition of assets following death. An estate plan is best handled by a knowledgeable, licensed attorney.
 
Estate planning attorneys do not sell insurance, annuities, securities or real estate. Estate planning is not financial planning. This means an estate planning attorney will not tell you where or how to invest your money.
 
Why should I have an estate plan?
Proper estate planning provides you and your loved ones assurance that the people who mean the most to you will be cared for properly in the manner you feel is best when you can no longer do it yourself.
 
In times of stress, unless there are detailed instructions already in place, decisions are sometimes made based solely on current emotional reactions and not on the basis of well-reasoned thought. By planning ahead, you create a course of action for your loved ones to follow so that they know they are abiding by your wishes.
 
What Is a Will?
A Will is the most basic Arizona estate planning documents; everyone needs a Will. It should be prepared by an attorney knowledgeable in estate planning matters. A Will states who will receive your assets after your death. Assets may include real estate, bank accounts, stocks, bonds, life insurance, retirement accounts, automobiles, art collections, jewelry and furniture. A Will appoints a personal representative to distribute your assets and administer the estate in accordance with the terms of the Will. It may also appoint a guardian to take care of your minor children and/or appoint a trustee to manage property for certain. However, it is important to note that a Will is effective only after your death.
 
What if I do not have a Will?
If you have not prepared a Will, Arizona has a complex statutory scheme that will govern how your assets are distributed. The distribution may be contrary to what you would want and, of course, will not consider tax liability reduction or provide for any discretion for circumstances that you would have considered.
 
Do people of all economic circumstances need a Will?
Yes, every adult needs to have a Will. First of all, if you have minor children, you want to designate a caretaker, or Guardian, for their care. You can not only select the person, but make financial arrangements in advance and give instructions about your child rearing priorities, religious instruction, education and the like. Also, a Will provides for distribution of items that might have little economic value but have huge sentimental value. You can take comfort knowing that these items will end up in the right person’s hands. Pets are another issue that a Will can address by designating who will be the caretaker following your death.
 
What is a Trust?
A Trust is a legal entity that holds many, if not all, of your assets. It can be established during your lifetime as well as after your death. A Trust has three important parties: (1) the Grantorwho creates the Trust, (2) the Trustee who manages the assets in the Trust, and (3) the Beneficiary(ies) who receives the benefit of the Trust assets.
 
What is a Living Trust?
A Living Trust (sometimes called a Revocable Living Trust) is a Trust that you create during your lifetime. You, as Grantor, maintain control of all assets during your lifetime, but direct them, avoiding probate, to your beneficiaries. A Living Trust should be prepared by an attorney knowledgeable in estate planning because of the tax and legal implications created by a Trust.
 
Why would I want a Trust?
There are many reasons why a Trust could be beneficial to you, including:
  • Avoid Probate and Conservatorship. A Trust can avoid the formal court administration called Probate. Because your assets are in the Trust, upon your death the Successor Trustee manages and distributes them to your designated Beneficiaries, usually without any court intervention. A Trust also can manage your assets for you during your lifetime in the event of your incapacity without the necessity of the formal court administration called Conservatorship. The Trust document typically gives the Successor Trustee the power to automatically take over management of your investments in the event of your death or incapacity without any court action.  
  • Minimize Taxes. Properly drafted Trusts may also minimize, or even eliminate, certain Estate, Gift and Income taxes. The tax savings can sometimes amount to hundreds of thousands of dollars.  
  • Maximize Control Over Your Estate. A properly drafted Trust continues to give you control over your investments even after your death. Further, a Trust can provide significant protection for your beneficiaries with special needs such as someone who is severely handicapped. It gives you control over future events if you become so ill that you’re unable to manage your investments.  
  • Creditor Protection. Certain Trusts, when properly drafted, provide protection for the Beneficiaries (you, during your lifetime, and future Beneficiaries, after your death) so that your creditors are unable to access the assets in the Trust. These Trusts also reduce the risk of the expense and frustration of unnecessary litigation.
What kind of estate plan is right for me?
There is no “one size fits all” estate plan. Estate planning is very personal because each individual has unique priorities and needs. Some of us put more emphasis on saving taxes. For others, succession planning is important. You may have elderly parents or young children who rely on you for care and/or support; special provisions need to be made for them. A good estate planner will address your individual situation and tailor an Estate Plan to your priorities and needs.
 
What is a Financial Power of Attorney?
A general Financial Power of Attorney allows you to authorize another person to act on your behalf in all financial matters. The person to whom you give your Financial Power of Attorney may write checks against your bank account sell your property, enter into contracts in your name – in short, everything and anything you can do. Obviously this is a very powerful document. Because many issues must be considered and options weighed, it is important that the document be prepared by a knowledgeable attorney after a personal consultation with you.
 
What about health care directives?
Health care directives generally can take two forms. The documents are used in the event that you are not in a state where you can control your medical care and/or end of life decisions. The first type actually acts as direct instructions to the care provider as to what medical treatment (or withholding of extraordinary treatment) when certain medical conditions and circumstances arise. Another form is where you appoint a third party, presumably a loved one whom you trust and have spoken to about your desires, to act on your behalf regarding medical decisions when you are not able to.