Probate/Wills & Trusts

What is probate?

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Probate is a court process where you are actually going through and either filing the person who passed away’s will or you are relying just on the laws of Arizona to say who is going to receive assets. For there to be a legal transfer of assets from the person who passed away to whoever the beneficiary is or heirs are, there needs to be this court process. At the end of the day, you need to go through this court process in order for the assets to be transferred into the names of those beneficiaries.

Do all assets have to go through probate?

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Not all assets have to go through probate. Only probate assets have to go through probate. I am going to give examples of what probate assets are. A probate asset is an asset that is usually just in an individual’s name. If let’s just say John passes away. If John has a bank account, investment account, CDs in his name alone, these are probate assets because they’re individually owned.

If John also has retirement accounts, but those retirement accounts do not have any beneficiaries listed, then this is a probate asset. Or if John has a retirement account or a life insurance policy that has beneficiaries listed, but those beneficiaries are deceased, then this is a probate asset. If John owned a business, his business interest is a probate asset.

Probate assets are just individually owned assets or assets that do not have a beneficiary designating where they should go. Obviously, non-probate assets are going to be anything that is either jointly titled or that has beneficiaries listed. If John passed away, he could have probate and non-probate assets, but only those probate assets, again, those assets only in his name alone, would have to go through probate

Should I jointly title everything with my child to avoid probate?

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I highly suggest that people do not use this approach to avoid probate. Obviously, by doing so, you are avoiding probate because the asset then is jointly titled. When you would pass away, then the children would be the owner of that account or home.

However, understand that when you do that, that asset is now that child’s. If they are sued, the creditor is going to see that home, or bank account, or investment account as their account or asset. It is not something that you can simply explain away or say, well, that is really not theirs. It is really mine. Their name is just on it. They don’t really care at that point. There are other ways to approach it.

Another thing to point out is that a lot of times when a client wants to put their child on a bank account or home, it is usually just one child just for the sake of convenience, but they have multiple children. They assume that that specific child is going to be a great kid and just hand out money to their siblings, but they legally don’t have to. If their parent passes away and their name is the only one on the home, they don’t have to share in the proceeds with their siblings, and their siblings would have no legal recourse against them.

What’s the difference between a will and a trust?

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A will and a trust are very similar. I think that is why people get confused about it. Both documents allow you to say who is going to receive your assets or get your stuff when you pass away. However, a trust has several features that a will doesn’t.

A few of them being a trust avoids probate. Probate again here in Phoenix is where your will is filed and then becomes public record. A lot of people don’t love that idea that their information is out there, part of the public record.

A second feature of a trust is that it has an on and off switch. What I mean by that is you can turn the trust on when you wanted to and turn it off when you don’t. If a client comes to me and says, when I pass away, my adult child is just terrible with money. I don’t want them spending it. We can turn the trust on when they want them to receive money and, in the meantime, it would be off.

We could do that at intervals or ages. If they’re like every five years they get money, then that’s how we can structure the trust. That’s a feature that a will just does not have.

What happens if I die without a will?

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In Arizona, if someone dies without a will, the laws of intestacy control. The laws of intestacy are simply what Arizona has stated as this is who will receive your assets because you didn’t put it down on paper. However, what people don’t think about is this scenario. Husband and wife have been married a really long time. Let’s say the husband has a child from a previous marriage. Then he passes away, and the house he and his wife lived in is in his name alone.

Because he doesn’t have a will that says she receives everything, his child from this previous marriage has a 50% interest in this home now with his surviving spouse. She now owns this home with her stepson or stepdaughter whom her husband hadn’t talked to in years. It’s only because most spouses assume that everything will just go to the other and they don’t have to put that down in a will. That’s an example of how things can turn out differently than what people expect if you rely on the laws of Arizona.

Should I create a will online?

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I honestly don’t recommend it for a couple of reasons. First of all, for anything you find online, you get what you pay for. It is not good quality, and a lot of times, people do not execute them correctly. In Arizona, you need to sign in front of two witnesses, and it is always recommended that there is a notary as well. A lot of times, the online forms do not really indicate that is what is required, and then there are missing pieces.

Also, with the online forms, they don’t know what they’re missing. A professional, like an attorney, can sit down and understand the client’s situation and know exactly what needs to be put into the document instead of using a cookie cutter form. If they don’t fit in the cookie cutter form, then there’s going to be parts that are missing and not included. They’re not going to know that it is not going to turn out the way they want until they pass away and then their family has to deal with it.

Can my ex-spouse disinherit my children if I die?

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Absolutely. Typically, when a couple comes in, they create what is called mirrored wills. They are identical in the sense that it says everything goes to each other or if both are deceased, then it goes to let’s say half to the husband’s children, half to the wife’s children. However, if when one passes away, let’s say the husband passes away first, the wife can then create a new will disinheriting the husband’s children. She can create a whole new will that says, when I pass away, everything goes to my children alone.

Should I file my will or trust with the state?

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At least here in Phoenix, you do not file your will or trust once it’s completed. We want to keep it private until it needs to be recorded. Obviously, once someone passes away, their will may need to go through probate, and it will then become a public record, but ahead of time, it is not filed or recorded anywhere. There is no registry here in Phoenix to keep those documents. What I recommend is that people at least tell their loved ones that they’ve completed a will or trust and where they intend to keep it and the contact information of the attorney that prepared it if they had an attorney prepare it. Otherwise, if they do not give this information, then a lot of times, it goes missing.

Living vs testamentary trusts

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A living trust is also known as a revocable trust, but it’s called a living trust because when someone creates it, they create it during their lifetime, and they use it during their lifetime. A testamentary trust, on the other hand, is created after someone passes away. I think that is a lazy approach because the task of creating a testamentary trust is then put on your executor or personal representative of your estate. You’re putting the work on them to create it instead of creating it during your lifetime. Plus, a testamentary trust does not avoid probate, which is a feature that usually people want to take advantage of when creating a trust.

Estate Planning

What is an estate plan?

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An estate plan is just a series of legal documents that are put into place for the unexpected. The unexpected being incapacity or death. Typically, the estate plan includes a durable power of attorney, a health care power of attorney, a living will, a last will and testament, and sometimes a revocable trust. Those documents are customized to the client, whether they are a couple or an individual.

I’m new to Phoenix – do I need to redo my estate plan?

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If someone moves to Phoenix from out of state and they need to update their will or trust, there are a few things to think about. First of all, I think a lot of people think just by moving they need to update their estate plan. That is not necessarily true. First of all, I think that sitting down and going over what they have is the best approach and not automatically thinking they need to update. A lot of times, what I see is that the move in combination with the fact that the document is 10 or 12 years old requires some major updating at that point. Then we most likely would create all new documents.

Do I have to be wealthy to need an estate plan?

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What people misunderstand about creating an estate plan is that they think they have to have a lot of money, or it is only for the wealthy to have a will or especially a trust prepared. It’s really not. It’s really a matter of taking those series of documents and customizing them to the particular client depending on if they’re an individual, or they’re a couple, or they have children, minor children, adult children, or grandchildren. Taking their particular situation and customizing the documents to them.

It’s not even necessary that they have to be older to think about an estate plan because I have plenty of clients who are younger and they have minor children. They’re thinking about if something does happen, they want to make sure that they have documents in place that say who is going to be the guardian of their children and that it is not decided by a judge who doesn’t know their family and their situation. It is a matter of getting over the fact that it doesn’t have anything to do with money or age. It’s just customizing the estate plan to everybody’s particular situation.

Do I need a DNR?

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A DNR (Do Not Resuscitate) is something that is needed on a case-by-case basis. A DNR is a prehospital medical directive. In Arizona, it is required that it be on orange paper. It requires your photo to be on the paper. It requires your doctor to sign off on it because what you are indicating to first responders is that you do not want to be resuscitated prior to going to the hospital.

I think what people are confusing this with is a living will which is your end-of-life instructions. A living will is when you are saying, if I’m approaching death either in a terminal condition or a vegetative state, I don’t want to be kept alive on a breathing machine or feeding tube. They are different documents. I want people to be educated on the difference between the two.

Who needs a power of attorney?

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Everybody needs a power of attorney, even married couples. I think married couples assume that they have this automatic power to do financial transactions on behalf of their spouse, but that is not the case in Phoenix or any other state. A power of attorney is going to allow you to appoint an agent to handle your financial affairs when you are unable to.

For example, your spouse could handle a bank account because you are jointly on it. There are some assets that are jointly owned that a spouse cannot handle, specifically a home. Even if both spouses were on the title to a home here in Phoenix, they would not be able to sell the home without a power of attorney stating that the spouse could sell the home. Even if there were other assets like a retirement account or life insurance, a spouse could not manage those assets on behalf of their spouse without this document. If they don’t have this document in place, then they are forced to have to file a guardianship, which is an expensive and a timely process. This is something that they don’t want to do when they’re going through this emotional situation to begin with.

Business Planning

Special considerations for business owners

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For small business owners, we need to have a conversation and deal with the business side and how it is incorporated into their estate plan. First of all, I’d look at and make sure if they have a business and they own it with someone else, they have the correct business documents in place that say what happens when they pass away. If not, then those need to be updated. Basically, we would handle the business documents separate from the estate plan documents. That would be a situation that we would definitely need to review and make sure that it is already in place and if not, updating.

The second piece would be making sure that estate plan addresses how they want things to go once they pass away and what that is going to look like, and if they have somebody that might take over, or run the business until it can be sold. There are different things that would need to be brought up. Again, like I said, part of it is dealt with in the estate plan piece in the will or trust, and then the other piece would be dealt with in the actual business documents.

Does a business owner need an estate plan attorney or a tax attorney?

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They do need to see an attorney and a CPA or an accountant, somebody who is a tax expert, because a business has a legal side and a tax side. I am not a tax attorney. It requires both sides to work together to make sure that the correct business entity is chosen, whether it’s an LLC, or a corporation, or a partnership and then how it’s going to be structured with ownership percentages and things like that.

It requires both sides, but I think where the attorney can come in most handy is making sure that the business has the internal documents if there are multiple owners and making sure that it has those internal agreements prepared. In addition to that, an attorney can make sure that the business has its own contracts. If it is a service provider, having its own contracts in place and making sure that if it already has a draft, either they are reviewed, or they are prepared from scratch because too many small businesses start operating and they have a flimsy agreement. Something is going to go wrong, and then they’re not going to be able to enforce what they want, because they didn’t have an attorney prepare it.

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