The Ultimate Guide to Arizona Estate Planning in 2023
The bottom line: A personalized living trust-based estate plan is the best way for most Arizonans to protect their wealth and family.
Updated August 27, 2023.
Introduction
This Guide distills over 25 years of experience helping Arizonans with estate planning and administration into a valuable resource to help you understand how to protect your family from the emotional turmoil of probate courts and inheritance disputes.
Let's get started.
Whitney Sorrell, JD, CPA, LLM (Tax)
Table of Contents
Understand Your Estate Planning Options
Arizona estate planning is more than just preparing a will; it involves making decisions that affect your life and those you care about most.
A variety of estate planning tools are at your disposal. The specific tools to use depend on your net worth, your goals, and your family context. At the risk of oversimplification, there are 4 options you can choose relative to Arizona Estate Planning:
-
The plan chosen by 67% of Americans as of this writing.
Pro
No upfront financial cost.
Cons
A) Leaves behind a legal mess that only your loved ones will be around to sort out.
B) Arizona law, specifically the laws of intestate succession, will dictate who gets what.
This can create many problems, the most common being:
1) Your minor children receive a lump sum inheritance when they turn 18, with no oversight and total control.
2) Distant family members who don't even know you can end up receiving the wealth you worked your whole life to build.
-
A Will, more formally known as a Last Will and Testament is a legal document where you write down who you want to receive your belongings, money, and property after you pass away.
Note: A Living Will is a different document with a different purpose. More on that below.
Pro
Low upfront financial cost.
In fact, there is a free will template in the Arizona State Statutes, but this should only be used in rare circumstances for small estates when there is no time to consult with an estate planning attorney.
Cons
Probate is a major con because even the slightest disagreement can result in thousands of dollars in legal fees and many months of litigation, all in the public arena of the Arizona probate courts.
B) Does not provide for incapacity during one's lifetime.
-
A Living Trust is like a special container where you place your belongings, money, and property while you're still alive.
With a Living Trust, you can set rules on how these items should be used or given out, both during your lifetime and after you pass away.
Pros
A) Avoids probate, saving time and money.
B) Can be drafted to add specific protections for special situations such as disabled beneficiaries, children who lack responsibility or financial acumen, and other special cases requiring extra detail.
C) Provides for management of assets during incapacity without court intervention.
D) Private administration.
Cons
A) More expensive and complex to set up than a simple will.
B) Requires active management, like transferring assets into the trust.
C) Provides no creditor protection to the trustmakers.
-
Advanced estate planning goes beyond just deciding who gets your stuff after you pass away. It's like playing a strategic board game where you set up trusts and business entities to protect your assets, reduce taxes, and ensure your loved ones are taken care of in specific ways.
This might include creating special trusts for a family member with special needs, setting up charitable donations, or reorganizing your business for succession planning purposes, tax efficiency, asset protection concerns, or all of the above.
It's a way to address more complex situations and make sure everything aligns with your goals and wishes, both now and in the future.
Pros
A) Can be used to reduce estate tax liability and defer payment of income tax.
B) Special structures can protect assets from creditors and lawsuits.
C) Can be tailored to address specific family or financial situations.
D) Allows for charitable giving and philanthropy.
E) Provides structures for business succession and continuity.
After accounting for tax savings, advanced planning usually pays for itself.
Cons
A) More expensive to establish and maintain.
B) Requires regular reviews and updates to stay current with laws and personal circumstances
C) Requires coordination of cash flows amongst your estate planning attorney, CPA, and financial advisor.
Ensure Your Wishes Are Followed After Death
A well-crafted estate plan is your ticket to peace of mind.
It's not just about protecting assets, but ensuring your beneficiaries (the people who will inherit your assets) honor your wishes.
Arizona probate court proceedings can be complex and time-consuming. You don't want your loved ones left in a lurch, grappling with the legalities of the probate process in a time of grief.
For most families, a Living Trust-based estate plan is the obvious choice because it provides for a private administration outside of probate Court and allows you to stay in control of how your assets will be cared for if you are incapacitated and distributed once you pass away. A Living Trust can also be used in conjunction with advanced planning techniques, so it is a logical first step for anyone looking to start the estate planning process.
No matter which estate planning option you choose, the key is to prepare a personalized plan that fits your specific needs and objectives.
Creating an Estate Plan specific to your Needs
Estate planning isn't a one-size-fits-all process. Your needs, goals, and circumstances are unique.
For example, remarried couples need special language in their trust to protect the children of the first to die from being disinherited. This problem can't be fixed by a Will-based estate plan. Therefore, remarried couples need a living trust-based estate plan by virtue of their family situation.
Similarly, using a Will based plan to leave assets to a disabled beneficiary could disqualify them from needs-based government benefits such as Supplemental Security Income (SSI) and the he Arizona Health Care Cost Containment System (AHCCCS).
This is where the expertise of an experienced Arizona estate planning attorney comes into play. An estate planning attorney can discuss your specific situation and help you solve the specific estate planning problems facing your family.
Determine What You Need in Your Estate Plan
The first step in the estate planning process is to identify your assets - real estate, bank accounts, investments, businesses, and anything else you own; it all counts.
As you create the list, consider the following:
1) Who would I trust to care for these assets if I was in the hospital and needed someone to pay bills on my behalf?
2) Who would I want to be responsible for gathering these assets, paying any claims against my estate, and distributing the assets to my heirs if I were to pass away?
3) Who do I want to inherit each asset after I'm gone? Do I want to place any limitations on the timing of when they receive the assets or any requirements that must be satisfied if they are to receive the asset?
4) Do I have any life circumstances that would require special attention? See examples below.
Life Cicumstances Requiring Special Attention
| Situation | Things to Consider |
|---|---|
| Blended Families | If you're part of a blended family, with children from previous relationships and a current spouse, it's crucial to make sure your estate plan considers everyone. This helps avoid potential disagreements and ensures everyone you care about is taken care of. |
| Special Needs Beneficiaries | By installing a Special Needs Trust, they can continue to get the care they need without risking their eligibility for government help. |
| Owning Property in Multiple States | If you have homes or significant assets in more than one state, your estate could face legal processes in each of those states when you pass away. A solid estate plan can simplify this. |
| High Net Worth | If you have significant assets, it's essential to plan your estate carefully. This can help reduce taxes, protect your assets from potential legal claims, and make sure your wealth goes where you want it to. |
| Business Owners | This includes choosing who will run it, how the change in leadership will happen, and how to support family members who might not be part of the business. |
| International Assets or Dual Citizenship | If you have assets in different countries or hold dual citizenship, your estate plan needs to account for the laws and regulations of each place. |
| Charitable Giving Intentions | Passionate about supporting certain causes or charities? Your estate plan can outline how you want to continue that support after you're gone. |
| Estate Planning for Digital Assets | If you have valuable online assets like social media accounts, digital photos, websites, or even cryptocurrencies, your estate plan should detail how you want these digital assets managed or passed on. |
| Estate Planning for Pets | Your estate plan can include naming a caregiver and setting aside funds for your pet's care. |
| Significant Age Difference Between Partners | If there's a large age gap between you and your spouse, your estate plan should ensure both of your needs are met throughout your lifetimes and that assets are distributed in a way that aligns with your joint wishes. |
| Gifts to Grandchildren | The Generation-Skipping Transfer (GST) applies to gifts and inheritances given directly to grandchildren or to trusts for their benefit, where the transfer of assets "skips” a generation. There are exemptions and strategies you can use to minimize or avoid this tax. |
Decide if you will Hire an Estate Planning Attorney to Assist
With online estate planning services like Trust & Will and LegalZoom, it's valid to question if you need to pay an attorney to assist with your estate planning.
Not too long ago, attorneys were commonly referred to as a “counselor of law.” Online estate planning services don’t provide this counseling role that’s critical to making sure your estate plan achieves your goals and objectives. The terms and conditions of two of the largest online estate planning services explain they do not provide a substitute for the advice of an attorney.
Here's an excerpt from Trust & Will's Terms of Service:
TRUST & WILL IS NOT A LAW FIRM, AND DOES NOT PROVIDE LEGAL ADVICE. WHILE TRUST & WILL STRIVES TO ENSURE THAT ITS AUTOMATED SERVICES ARE COMPLETE, THEY ARE MEANT PURELY AS SELF-HELP FORMS. THE MATERIALS AND SERVICES ARE NOT SUBSTITUTES FOR THE ADVICE OF AN ATTORNEY.
LegalZoom's terms of service uses similar language:
I understand and agree that LegalZoom is not a law firm or an attorney, may not perform services performed by an attorney, and its forms or templates are not a substitute for the advice or services of an attorney.
Essentially, these online estate planning solutions are providing a "fill-in-the-blank" service that relies on online forms and automation to generate its best guess at what language to include in your documents based on the information provided. This process is ripe for mistakes and may result in lengthy Arizona probate court proceedings and high legal fees.
Your best option is to work with an experienced estate planning attorney who knows the right questions to ask and can prepare a comprehensive estate plan personalized to your goals and your family.
You worked hard to build your wealth. Don't trust an online service to protect it.
Essential documents for every Arizona Estate Plan
Whether you choose to prepare a Will or a Living Trust, every estate plan should include the following documents:
Last Will and Testament
In the context of a Will-based estate plan, your Last Will and Testament is the primary legal document that outlines how your assets and property should be distributed after you pass away. It lets you specify who gets what, choose guardians for any minor children, and appoint someone to oversee the distribution of your assets.
After you pass away, your estate typically goes through a legal process called probate. This is where a court checks the will and makes sure everything is distributed as you wanted. However, this process can take time, be public, and might get expensive, especially if someone challenges your will.
The role of a Last Will and Testament is different in a Living Trust-based estate plan. Here, the main document is the Living Trust, which holds and takes care of assets for the people you choose. The good thing is, assets in your trust can be distributed after you die without the lengthy probate process, making things more private and often faster. If you have a will in this setup, it's usually called a "pour-over will."
Think of it as a backup plan. If there are any assets you forgot to put in the trust while you were alive, the pour-over will is there to make sure those assets get added to the trust after you're gone and are distributed based on the language in the trust.
Durable Power of Attorney also known as a Financial Power of Attorney
A Financial Power of Attorney (POA) in a Will-based plan lets you appoint someone (an Agent) to handle your finances in the event you are incapacitated. It operates during your lifetime, while the will dictates asset distribution after you pass away. The POA can grant authority to your Agent immediately or in the event you are incapacitated.
In a Living Trust-based plan, while the trust manages assets within it, a Financial POA covers financial decisions outside the trust. It ensures someone can manage assets not in the trust or handle financial tasks not specified by the trust.
Health Care Power of Attorney
A Health Care Power of Attorney (HCPOA) in an estate plan designates a trusted individual to make medical decisions on behalf of the person creating the document (the principal) if they become incapacitated or unable to communicate their wishes.
Living Will
The primary purpose of a Living Will is to provide clear instructions about medical decisions, such as life-sustaining treatments, resuscitation, artificial nutrition, and hydration. A living will is critical because it communicates whether or not your Health Care Agent can "pull the plug" if your doctor believes you are in a permanent, irreversible vegetative state.
HIPAA Authorization
The Health Insurance Portability and Accountability Act (HIPAA) protects the privacy of an individual's health information. Without a HIPAA Authorization, even close family members might be denied access to your medical details due to these privacy regulations. By granting this authorization, you help streamline communication between healthcare providers and your designated representatives, ensuring they have the information they need to act in your best interest.
Personal Property Memorandum
A Personal Property Memorandum allows you to specify how you want your tangible personal property to be distributed upon your death. This document typically covers items like jewelry, art, collectibles, furniture, and other personal belongings, but not real estate or monetary assets.
Making Use of Irrevocable Trusts for Asset Protection & Tax Minimization
Remember: Estate planning is not just about drafting documents. It's about creating a plan that truly works for YOU and YOUR FAMILY. If you work in a highly litigious industry or have concerns you might be a target for lawsuits, irrevocable trusts can provide asset protection benefits not afforded by a living trust. Further, irrevocable trusts can be a tax planning tool when used appropriately.
There are many different types of irrevocable trusts, but here are the 5 most common used in my practice as of this writing:
Qualified Personal Residence Trust (QPRT)
A QPRT allows the grantor (you) to transfer a primary or secondary residence into a trust while retaining the right to live in the property for a specified term. After the term ends, the residence passes to the beneficiaries (whomever you want to end up with the property) at a reduced gift tax value.
Intentionally-Defective Grantor Trust (IDGT)
An IDGT is an irrevocable trust structured to remove assets from the grantor's (your) estate while allowing the grantor (you) to remain responsible for the trust's income taxes, effectively reducing the value of the trust assets for estate and gift tax purposes.
Beneficiary Defective Inheritor's Trust (BDIT)
A BDIT is an irrevocable trust set up by a third party (often a parent) with the beneficiary (often a child) as the grantor for income tax purposes. This allows the beneficiary to have control over and access to the trust assets while providing asset protection and minimizing estate and gift taxes.
Charitable Remainder Trust (CRT)
A BDIT is an irrevocable trust set up by a third party (often a parent) with the beneficiary (often a child) as the grantor for income tax purposes. This allows the beneficiary to have control over and access to the trust assets while providing asset protection and minimizing estate and gift taxes.
Life Insurance Trust
A BDIT is an irrevocable trust set up by a third party (often a parent) with the beneficiary (often a child) as the grantor for income tax purposes. This allows the beneficiary to have control over and access to the trust assets while providing asset protection and minimizing estate and gift taxes
Other Types of Irrevocable Trusts
There are many other types irrevocable trusts, each with their own specific purpose. If you are interested in forming an irrevocable trust I suggest you contact my office to request a consultation. I'd be happy to discuss what you are trying to accomplish and help design a structure to achieve your objectives.
Planning for Major Life Changes
Estate planning is not a one-time event. It's an ongoing process.
Your estate plan should be updated as major life changes occur.
For example a significant increase (or decrease) in wealth calls for re-evaluation especially when it comes to tax planning. Entering or exiting a marriage can significantly impact how you want your assets distributed. Moving to another state can impact the administration of your estate and is good cause to have the estate plan reviewed by an attorney in the new jurisdiction.
If you encounter a major life change, contact your estate planning attorney to make sure the documents account for the new situation.
Arizona Estate Planning FAQs
How can estate planning protect your assets?
Estate planning helps protect your assets by setting clear guidelines for the trustee to follow in the event you become ill and can’t make your own financial decisions. Preparing an estate plan also helps you make sure your assets go to the intended beneficiaries. You can even design your living trust to distribute your children’s inheritance into asset protected sub-trusts. Protecting your own assets while you are alive and in control requires advanced planning techniques using a combination of trusts and business entities to silo liability and increase the level of protection to protect against future lawsuits and other creditor actions.
How can estate planning cost help with making final arrangements for funeral and burial?
When it comes to making final arrangements, estate planning enables you to choose who will be responsible for the execution of your wishes. Estate Planning gives you the ability to put your wishes in writing, including whether you prefer a traditional funeral service or a celebration of life. By including these items in your estate plan, you can ensure that your final arrangements align with your personal preferences and provide peace of mind for both you and your loved ones.
How much does estate planning cost in Arizona?
Estate planning costs in Arizona can vary, typically ranging from $1,000 to $10,000+ for a comprehensive plan depending on the complexity and sophistication of the techniques involved.
What are common estate planning mistakes?
Common mistakes include not updating your plan regularly, failing to fund trusts properly and neglecting to name contingent beneficiaries. Mistakes in Arizona estate planning usually come down to not having a plan at all or relying on outdated techniques or flawed legal advice.
What is the difference between estate planning and probate?
Arizona probate is the legal process of settling an estate through the Arizona probate courts. Probate filings are part of the court record and can be viewed by the public. Most estate plans aim to avoid the probate process to keep the administration private. Estate planning is a process of planning who gets what, when, and on what terms, then preparing legal documents that reflect these wishes to protect your wealth and family.
Take the First Step to Securing your Future
Arizona estate planning can be daunting, but I hope this Guide makes it easier to digest.
Here are the major takeaways:
Understanding your estate planning options is the first step to securing your future.
A living trust can minimize probate costs, keeping more wealth in your family.
A personalized estate plan is the best way to protect your loved ones.
Major life changes are inevitable. Your estate plan must adapt accordingly.
If you're ready to take control of your future with a personalized estate plan, please contact my office to request a consultation.
I can help you navigate estate planning with confidence so that you can focus on what truly matters: enjoying life today with the peace of mind your family and wealth are protected.
Whitney Sorrell, JD, CPA, LLM (Tax)