You used my money for what!? – How to Leave Your Assets to Your Beneficiaries

True story … (well maybe since we heard it on the radio…) Since the day his precious daughter was born, a father worked and saved for her college tuition. Now a young woman, she is admitted to college, and he proudly sends her off with her first year’s tuition … only to later discover that she used the money for breast implants. What?!?

At least he was still around to argue about it, but what if it happens after he is gone?

We all want to give our children advantages that we did not enjoy. That is why we want to leave them a legacy. But keep in mind that for many kids (no matter their age) your legacy is their found money. While everyone says they “don’t want to control from the grave”, do you really want the assets you scrimped and saved for to be used for frivolous or meaningless things? Probably not.

The good news is, through your estate plan, you can exercise some level of control over how your children receive and spend your legacy. For some kids, no control is needed. For others, maybe a lot of control is needed. You might also have to consider what we call “creditors and predators.” So how do you do it?

Let’s look at three methods.

Outright Distribution
This method is pretty straightforward. Upon your death and after payment of expenses and debts, your beneficiaries get your stuff immediately. You can do this using a will or a trust. The advantage is that the assets are readily available to your child or they can be folded into their own estate plans. The disadvantages may include some rather serious tax consequences depending on the size of the estate. Also, outright distribution to a child with special needs can interfere with government benefits your child may be receiving. Of course, that irresponsible child (see above) may blow through your assets with the speed of light.

Staggered Distribution
This scenario allows you to make periodic distributions to your children and usually is done through a Trust. Your child can receive a percentage of their inheritance at certain ages, dates or when certain events happen. For instance, when your child turns 21, they receive 1/3 of the inheritance, another 1/3 when they marry, and the final 1/3 when they reach age 40. You can also build in distributions of principal and income for things like a down payment on a home, educational expenses or even a monthly stipend for living expenses. This method is essential if you have young children.

Or if your child is grown but still has some maturing to do, you can structure an “incentive-based “trust. You may have seen the movie with James Garner called The Ultimate Gift. In this film, a deceased billionaire leaves his spoiled adult grandson a series of tasks to perform to receive his inheritance. Similarly, this kind of trust can be used to motivate an immature beneficiary. For instance, your child will receive ½ the inheritance when he or she graduates from college and the other half when he or she retains a full-time job for at least two years. This method of staggered distribution allows you to prevent a beneficiary from having too much control of inherited assets until he or she is more capable of managing them. In addition, this is a good way to protect your child and your assets if he or she is having creditor issues or is going through a divorce.

Lifetime or Dynasty Trust
A third option is to leave assets to your beneficiaries through a lifetime or dynasty trust. In this method, your assets remain in trust for the beneficiary’s entire lifetime and perhaps for the next generation as well. For instance, your child would receive distributions from your trustee for health, education and living expenses. This means more administrative expenses, but it also provides solid asset protection from those creditors and predators. This is particularly useful tool if you have a special needs child. You can support their needs and yet not interfere with government benefits he or she may be receiving. It is also a good plan if you are concerned about a child’s marriage.

Whatever method you choose, you should start by discussing all options with an experienced estate planning attorney. Each method has pros and cons that should be carefully weighed to meet your goals for your family, and cater to the individual needs of your beneficiaries.

So, make an appointment and get these beneficiary worries off your chest (sorry I couldn’t resist).

What if I don’t have someone to trust with my affairs?

We all know adults who are alone in the world. Perhaps the person is divorced, widowed or single. Perhaps he or she never had children or is estranged from them. Perhaps he or she has outlived siblings and other family members, or, as is unfortunately common in Arizona, a couple has no children, is alienated from them and their closest family members are far away. Or they don’t trust any of them to make the right decisions.

For whatever reason, it can be difficult for people in any of these situations to appoint someone as their executor, successor trustee, power of attorney or health care surrogate in the event they can’t make decisions due to accident or illness or upon their death. Unfortunately, these folks often avoid making any kind of decision and avoid completing necessary paperwork. When the worst happens and they lose their capacity to make decisions, they are out of luck.

There are actually solutions to these situations including trust companies or professional fiduciaries.

What is a professional fiduciary?
A fiduciary is a person who assumes responsibility as money managers, trustees or agents under financial or health care powers of attorney. Fiduciaries can serve by court appointment or by private agreement. If appointed by the court, fiduciaries are known as guardians or conservators.

A professional fiduciary can also be an individual or corporate entity like a bank or financial institution’s trust department or a trust company. Each of these specializes in being a trustee of various kinds of trusts and in managing estates. When you die, the corporation takes the places of your executor with powers of attorney and has the power to collect debts, settle claims for debt and taxes, detailing your assets for the courts and distributing wealth to your beneficiaries.

The next step up is a professional fiduciary who serves as an agent for power of attorney or health care surrogate, or as a trustee. In this instance, the professional fiduciary carries out instructions in any written documents like trusts, powers or attorney or advanced health care directives. In addition, where the law allows, this type of professional fiduciary can use their own best judgment to handle the incapacitated person’s affairs. This type of fiduciary must be selected and arrangements made in writing while the adult still has the legal capacity to make such decisions. The services of the fiduciary will not kick in until the individual lacks the capacity to make decisions for him or herself.

Last but not least, the most restrictive type of professional fiduciary is appointed by the court and is known as a guardian or conservator. The guardian is legally appointed to manage the incapacitated person (the ward’s) property or person and everything is overseen by the court.

Don’t wait
We all want control over our lives, so it makes sense to bite the bullet and make decisions in advance for our own care should something happen. By taking steps now, we can screen professional fiduciaries and select the person or organization we believe will manage our affairs in the manner we would like. Talking to an estate planning attorney is a good first step. The attorney can suggest ways for us to explore professional fiduciaries in the area in which we live until we find the right person to fit out needs.

Estate Planning for DINKS

The face of America is changing. Once upon a time, the nuclear family was the most prevalent “model” in American society (does anyone remember the Donna Reed show?). These days, however, as the population becomes increasingly more educated and career focused and for other personal reasons, fewer couples are having kids. These couples are sometimes referred to as “DINKs”) (Dual Income, No Kids). Foregoing parenting doesn’t mean couples should forego estate planning. In fact, without the added expense of raising and educating children, DINKs may have more assets to pass on which raises several unique issues.

If you are DINK couple (sorry, it makes me laugh), you may have several estate planning objectives. (1) you want to make sure your surviving spouse is taken care of if you die; (2) you want to make sure there is a plan in the event either or both of you become incapacitated; (3) maybe you want to make sure your pets (more than once pets have been referred to as the “children”); (4) perhaps you are a supporter of a charity or two and want to make a donation; and (3) you want to express your end of life wishes.

So whether you’re a young couple starting out, or a retired couple tying up loose ends, there are some things you need to know about.

 Wills
If you die without a will, your state will have to figure out whom to give your money and property to. How does that sound? A simple will could only cost you a few hundred bucks. For a married couple with no children, it doesn’t need to be very complicated. Have them done once and you’ll be good for years. You will also want to name your personal representative (executor in some states). You want to choose who that will be and not leave the chore to some unlucky relative.

 Beneficiaries
Designating beneficiaries is something you can do if you have very simple financials. Be careful though because using beneficiaries will take precedence over any other estate planning. Make sure you have them and it is current.

 Living Trusts?
A living trust is when you put your assets – money, home, car – into a trust while you are still alive, and keep using them. When you pass away, the assets in a very efficient way transfers to whoever the beneficiary is. Trust are an excellent means to address incapacity privately without the need for guardianships or conservatorships. If you have a trust or have one created, make sure you actually put your assets in the trust – something often overlooked.

 Leaving Money to Charity
Do you want to leave behind a charitable legacy? You can do this in your will, trust or in a charitable trust. Most people create a charitable remainder trust that allows you to live off of the assets while you are alive. When you die, what’s left goes to the charity. A charitable lead trust works the opposite way.

 Power of Attorney
You must have one. Period. And, it better be a good one that a financial institution cannot challenge. It must also be current – no older than two years. There is lots of flexibility on how and when they come into play.

 Living Will and Health Care Proxy
You know you need these even if you are a DINK couple. A living will says what your wishes are if you are in a vegetative state and doctors need a directive on whether to prolong your life with medical care. A health care proxy is the person you’ve designated to tell the doctors what to do in these situations and others. Do not rely on doctor’s deferring to your spouse. Have it in writing.

 Review your Existing Documents.
If you already have documents in place, it makes sense to pull them out from time to time to make sure they are consistent with your current circumstances. Estate Planning is a process not a transaction.

I’ve moved to a new state…should I review my estate plan?

Yes! If you’ve moved to a new state and are all settled in, there are some financial aspects of your move you need to take care of. Moving is a good excuse to consult an attorney to make sure your estate plan in general is up to date.

Will, trusts, powers of attorney and health care directives remain valid even if they were signed in a different state, however, certain provisions might conflict with the laws of your new state.

If your new state imposes income, inheritance or estate taxes (while your previous state didn’t) or vice versa, you should review the implications with your attorney and see how you could minimize your tax exposure.

In the case of a Will, if you are married and move from a community property state to a common law state or vice versa, the rules about what you and your spouse own will likely change. In addition, the rules about executors of your Will may change from state to state. Generally, a Will that is valid in the state where you resided, it will probably be valid in your new state.

Living Trust
Generally, living trusts should be valid in any state. However, it is a good idea to use an estate review to also review the terms of a living trust. This is particularly true for a community property state, like Arizona, because there can be a capital gains tax advantage commonly known as a “double step in basis.”

Advance Medial Directive/Powers of Attorney
Every state has its own forms for advance directive (living wills) and powers of attorney, so have your attorney make sure you are in compliance. Without getting these up to date, a healthcare provider might balk at accepting out-of-state documents just when you really need to use them most.

Beneficiaries you’ve named on insurance policies, bank accounts, IRAs, retirement plans or other assets should be valid wherever you live. However, it is a good idea to make sure the institution that controls the assets has your current contact information.

Another thing that should be taken care of are any guardianship papers. You’ll need to file new paperwork with the local probate court, and since each state has different laws pertaining to guardianship, finding an experienced attorney will make the process easier.

Will My Kids Blow Our IRA or 401k?


Your kids will receive a call from the IRA plan custodian who will offer them the option of getting a lump sum check or perhaps opening an inherited IRA. Guess what? The will probably take the lump sum. The will also probably burn through it in less than a year. Then they will find out that they have to pay income taxes on the distribution. Not a pretty picture and probably not what you intended for your hard working in saving the money in the account.

There is a better way. Creating a Stand Alone Retirement Trust (SRT).

Though it isn’t a new tool, the Stand Alone Retirement Account Trust has become a smart tool for people who will leave a substantial IRA or 401k to their spouse or children. An IRA Stand Alone Trust is great way to manage and protect these accounts by naming the Trust as the designated beneficiary of the retirement plan.

Leaving the retirement account to a SRT with your family as the beneficiaries in the SART allows you to direct how the assets will be distributed and gives you the opportunity to allow the funds to grow at an accelerated pace over the course of more than one generation. The SART will have its own terms and conditions for how the beneficiary may access them.

There are plenty of advantages to establishing a Stand-Alone IRA Trust.
• First and foremost, it can protect funds in the trust from lawsuits and garnishments including divorce.
• Even better, if used property, an SRT will allow the assets to grow exponentially overtime creating dynasty type wealth if distributed as you direct.
• It also provides income protection for individuals who might receive government needs-based benefits — like a special needs child.
• The trust let’s beneficiaries know that the IRA shouldn’t be cashed out immediately due to adverse tax consequence.
• For a blended family, it will help provide for surviving spouse and children of a previous marriage. That way, the ones you care about can’t be cut out of the estate by a current family member.
• It allows you to determine succession and control of the account in case of an untimely death of your intended beneficiary.

An SRT is part of an overall estate plan and is not for everyone. In addition, it has to be done correctly in line with legal and tax requirements so not every attorney has this knowledge. If you think that some portion of your retirement asset will go to family members, it makes sense to explore whether this is a good plan for you. Sitting down with your financial planner and an estate planning attorney to see if this is a good strategy for you is probably the best way to proceed.

Estate Planning for a Special Needs Child

Estate planning for your future can be tricky enough. It becomes even more difficult when you need to plan for a special needs child who may need a lot more care than a normal child. If something happens to you — chronic illness, catastrophic injury or even death — what will happen to your special needs child? Will they be able to care for themselves? Have you set aside the funds that will allow them to life as full and as happy a life as possible? Will the money last through their lifetime?

Planning early may seem expensive upfront but will save a lot of money in the long run — and it gives everyone peace of mind: you, your friends, your family, and your child.

First, start by considering all the factors as you shape your plan:
• Think about how you should divide your estate if you have more than one child, especially if one or more has special needs?
• Figure out how much financial support a special needs child will require? Think about what care he or she might need to meet physical and emotional needs, ongoing education or therapy, medical care, etc. Don’t forget to figure inflation into the mix.
• Make sure the money you leave your child doesn’t disqualify him or her from government benefits such as AHCSS, Supplemental Security Income, Medicare, etc. That often means setting up a Special Needs Trust.
• Pick a trustee you know won’t take advantage of or divert funds away from your special needs child.

An IRA Beneficiary Trust or Special Needs Trust can be established for the benefit of a minor or adult special needs child (or other family member) in two basic ways. (1) A quality Revocable Living Trust and Last Will and Testament will contain appropriate language to create a Special Needs Trust in the event one become needed at the time of or your death or (2) If there is a child who already needs the benefit of a Special Needs Trust, you can establish a “stand-alone” Special Needs Trust which takes effect as soon as you create it.

Here are some advantages for using the stand-alone Special Needs Trust.

Protect Benefits
Establishing a stand-alone Special Needs Trust will allow other family members to provide benefits for your child. For example, assume the child’s grandparents wish to leave the child a bequest. Without the trust, such a gift might cause a loss or interruption for government benefits. By establishing the stand-alone trust, you just need to let the grandparents know the name of the trust, which can be written into their own wills, trust, insurance, IRA or other retirement plan benefits. Upon their death, money will go into the trust, and not directly to the child.

In addition, your own beneficiary designations can list the stand-alone trust and make doubly sure that you won’t accidentally disqualify your child.

Just In Case
If you become incapacitated and unable to handle your own financial affairs, someone else must do it for you. If you have used your will or living trust to establish a special needs trust for your child upon your death, that won’t help if you are still alive. So a stand-alone trust is the best way to assure your special needs child is properly cared for. In this case, you specify that in the event you become incapacitated, funds can be paid into the special needs trust to meet your child’s needs.

If not you, then who? You will need to choose someone to serve as trustee if you are not able to. That person will have complete discretion over the trust so selecting the right person is extremely important.
Keep in mind that any Trustee, including you, cannot give money directly to the beneficiary. You can however, within guidelines pay for items for their benefit.

Fund Later
Just because you set up a Stand-Alone Special Needs Trust doesn’t mean you have to fund it immediately. You can put assets into it at any time. It is simply a safety net to protect your special needs child and you can decide when and how much to fund the trust as the future shapes itself.

Do I Need an Attorney?
YES! Drafting a Special Needs Trust should not be left to “do-it-yourself” documents. It takes an attorney with f relevant experience to help create a document that complies with all the laws and requirements and will help you understand how to protect your needs and the needs of your special needs child.

Finally Dumped Your Ex? It’s Time to Update Your Estate Plan!

The relationship is over, the papers are signed, but you are not quite done. At this point it is time to update your estate plan to reflect your changed life circumstances — even more so if you are contemplating another relationship. A new marriage can open up wonderful new opportunities, but it also comes with unique issues and concerns when it comes to your estate plan. Take the time now to restructure your estate plan to match the needs of your changed circumstance, or to reflect a blend of your new and old families. Here are some issues to consider when restructuring your estate plan.

Update Will and Beneficiaries
Leaving your Will untouched after a divorce or another marriage can be a huge mistake, especially if it only includes your first family and doesn’t consider the needs of your new family. Both divorce and new marriage are times to update the Will to change what you will leaving to old spouse, new spouse, children and stepchildren, etc. It also provides a chance to update other legal papers and changes beneficiaries if necessary on all your policies and accounts. While in Arizona, the divorce terminates the ex-spouse’s right to be a beneficiary under a will and trust or to serve as a fiduciary, you still want to make sure that you have a new estate plan and you absolutely must check beneficiaries on all of your financial and insurance accounts. If your ex is named there … guess what? It’s theirs when you die.

Rewrite the Language of Your Will
Depending on how you left your marriage, you may choose to write your ex-spouse out of your estate plan … or maybe not. In any case, take a good look at your estate plan to see what adjustments must be made. With a second marriage where other children are involved, the language of your Will can leave a lot of gaps or holes you might want to close. For example, if you leave assets to your children, do you mean your biological children, your stepchildren or both? If you leave something to be divided by your family, just who does that include?

Separate the Money from the Guardian
If you have children, unless there is a court order to the contrary, your ex-spouse is the natural guardian of your children. In many cases, it makes very good sense to create a trust with a separate or independent trustee to manage your children’s money. There are too many horror stories about the inheritance being spend on the ex-spouses own interests rather than the children. Do not let that happen to you!

Consider Feelings
Especially when undertaking a new marriage, new and old families can be very sensitive to estate planning issues. Do you want to leave assets to the stepparent and assume he or she will do the right thing by your biological children? Or would you prefer to take care of them now? Don’t assume that just because everyone gets along now that they will remain cordial. You must plan these sensitive matters carefully.

Consider a QTIP trust.
For families with greater wealth, a QTIP Trust, also known as a Qualified Terminable Interest Property Trust, allows the surviving spouse to live off the income from your assets and live on your property, but ultimately leaves everything to your children.

If you are taking the plunge again, also take the time to rework your estate plan so no one is left out and your assets are going exactly where you want them to go. If you are getting a divorce, you need to decide how to divide your assets without your ex in the picture.

Do I have to pay my parents debts after they die?

Having a parent die is difficult enough without creditors knocking down your door. It is not unusual for there to be medical bills, car leases or credit card debt. The creditors are going to start contacting you very quickly. Who is responsible for this debt? Here are some answers about what happens to the bills after someone dies.

When a person dies, their estate is “born.” That estate will have someone, known as the Personal Representative in Arizona, who will be designated by the will and affirmed by a court to handle all financial issues of the deceased, including their debts.

If you’re not in charge of an estate and get a debt collection request, direct the caller to the executor, then tell the caller you don’t want to be contacted about that debt again.

Credit Card Debt
In the case of the death of a parent or parents, the estate becomes responsible for the debt— not you.

The first thing to do in contact the credit card companies and the reporting agencies — Experian, Equifax and TransUnion — and request the account be flagged with the statement, “Deceased: Do not issue credit,” which will help prevent identity theft.

Caution though because people who request credit together are equally responsible for the entire debt. The same is true with a co-signer, who essentially guarantees the debt of the borrower. If the borrower dies, the co-signer becomes liable.

Authorized signers or additional cardholders on credit card accounts, however, aren’t liable. They didn’t originally apply for the credit; they were just allowed to “piggyback” on the account of the person who did. If that person dies, the authorized signers aren’t generally on the hook.

Don’t let the family swoop in and divvy up the valuables. Those items may need to be sold to pay debt or taxes. Only after all debt is settled may the assets be distributed.

You can ask creditors for help. If you are a joint account holder of the deceased’s credit card and are having trouble paying the bills, you can work with creditors and ask them to give you time to get organized and come up with a plan.

If an estate has more debts than assets to pay them, the estate is considered “insolvent” and creditors who have the right to start a probate to try and collect the debt, in reality will be forced to write the debt off.

Medical Debt
If your parent was on Medicaid, the state can recover the payments it made from the time your parent was 55 until their death. They can place a lien on your parent’s home or may negotiate and let the executor pay less than the total due, however, they can’t ask you to use your own funds to pay the bill.

If your parent’s had their own insurance or no insurance and died with unpaid hospital or doctor bills, the estate is responsible for paying them, not you

Mortgage Debt
If you inherit your parent’s home while it is still under a mortgage, you are responsible for making the payments going forward. The bank cannot force you to pay off the mortgage.

Tax Debt
Your parent’s estate is responsible for paying any and all taxes due — property taxes, income taxes and federal estate tax.

Joint Debt
Joint account holders are generally fully responsible for the entire debt, even if only one of them made all the charges.

The fact that heirs aren’t responsible for your debts, however, doesn’t mean your creditors won’t try to collect from them.

Community Debt
The above rules do not necessarily apply when the first spouse dies. In a community property state one spouse can be liable for the debts of another, even if they didn’t agree to them or even know about them. So in a community property state the surviving spouse may be on the hook for the credit card debt of a deceased spouse.

Ask for Professional Help
When in doubt, contact an experienced estate or probate attorney. With complicated estates, things can get very confusing and a good attorney can guide you through all the pitfalls.

Gregory C. Poulos
Poulos Law Firm, PLLC
11120 N. Tatum Blvd, Suite 101
Phoenix, Arizona 85028
Phone: (623) 252-0292

How Long Can I Afford to Live?

In 1900, the average American lifespan was 47 years of age. Today, our life expectancy is 78.8 years. So many people are wondering if their retirement funds will last long enough, and that question is causing a great deal of anxiety. In addition, it also has people wondering if they’ll be able to leave any financial inheritance to their families. It is causing many families to redefine what a legacy is and how to pass it on.

Some people are restructuring their assets so they can leave legacies when they pass, while others are giving away money in advance. About 62 percent of Americans age 50 or older are currently providing financial assistance to family members according to a study by Merrill Lynch and Age Wave. That support averages $15,000 per year — more when the giver has more resources. Luckily, you can give away $14,000 per recipient per year without triggering tax penalties or disclosures. After $14,000 the giver must fill out a gift tax return.

Here are some other ways to pass on your legacy while you live and upon your death.
• Grandparents can set up a 529 plan to build a college fund for grandchildren.
• Others use inheritances from their parents to purchase life insurance policies that will pay out even more than the initial inheritance.
• Some families purchase real estate (like a vacation home or property) that is held in trust or owned equally by all heirs.
• Still others create trusts that pay for their retirement years and which will then pass on to family members when the principals die.
• Many set up smaller trusts that will distribute assets year after year to favorite charities.
• Set up an annuity. An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and in return obtain regular disbursements beginning either immediately or in the future. The goal of annuities is to provide a steady stream of income during retirement.
• If insurable, using life insurance to fund the estate is a great way to leverage assets so that they are available to both generations.

There is also great concern that in living longer you may also need care that will sap your assets long before you die. There are strategies that you can put in place that will put some of your assets away from the reach of the government when it seeks to recoup those Medicaid charges.

If you are wondering how long you can afford to live and still pass on assets to loved ones, take time to learn how to plan for retirement. Work with a financial planner and an estate planning attorney to see your options. Like any journey, you need to know where your starting and ending points are. A financial plan will tell you where you stand today, but also where you want to get to, and the strategies you need to make it happen. In addition, an estate plan will provide a road map for your loved ones to begin their journey.

Should You Select a Corporate Trustee for Your Estate Plan?

One of the most difficult decisions my clients face when creating an estate plan is naming a trustee to administer to the trust if they become incapacitated or after their death. Many questions need to be asked. Do you have an individual you can trust to follow your wishes? Does that person have the wisdom to make good decisions? Does that person even want to be a trustee? How complicated is your estate — does it require a great deal of legal or financial acumen? Will your trustee live long enough to administer your estate?

For complicated estates or if you have no family member or friend you feel you can trust, a corporate trustee might be an option to make sure your beneficiaries are well taken care of.

The first choice many people make for a trustee is an individual trustee — most likely a relative or friend. He or she may find it difficult to say no to your request to be your trustee based on your connection or friendship. In addition, because they have a connection to your family, that person may have difficulty turning down requests for funds distributions from your children. Unless your trustee is an attorney, he or she probably doesn’t have the training to have difficult conversations and the emotional element involved with the family makes it even more difficult. Selecting a corporate trustee takes the emotional element out of the equation and allows for difficult conversations without straining relationships.

Lack of Expertise
Your individual trustee may lack the fiduciary experience necessary to properly administer your trust or estate plan. Selecting a corporate trustee that has years of fiduciary experience is the answer to the problem. In addition, a trustee should have a strong understanding of trust law, federal and state tax rules and many other issues. The rules are constantly changing, and a corporate trustee with an ongoing knowledge of changing law, can help prevent unintentional harm to the estate and avoid nasty tax consequences.

Often the first questions clients ask is about the cost of hiring a corporate trustee. It may be cheaper overall for a corporate trustee to administer to your trust. The corporate trustee will have a team of qualified people with specialized knowledge to handle every detail. An individual trustee who doesn’t have fiduciary experience may need to hire attorneys, accountants, investment advisors and more, and the costs will add up. In addition, if you find a corporate trustee that can also manage your funds, the fees will be adjusted for both services for a lower overall cost.

An individual trustee isn’t subject to any regulatory or audit oversight. Potentially, they can — and often do — whatever they want. A corporate trustee is periodically examined and reviewed by independent auditors and either state or federal banking regulators. Corporate trustees are licensed, bonded and insured for protecting your trust or estate.

Individual trustees may not know that, by law, they must report to beneficiaries. More than likely, the individual trustee will lack the proper tools to provide reports and to account for separate funds for income beneficiaries and funds available for remainder beneficiaries.

An individual trustee could become disabled, infirm or die and then your estate is thrown into disarray. Who will administer to the trust then? By selecting a corporate trustee, theoretically, the corporation will outlast any individual and be able to administer to your trust indefinitely.

Choose Both
The best of both worlds it to appoint both. That is, appoint an individual trustee, who has the intimate knowledge of the beneficiaries, and a corporate trustee with the expertise in the relevant laws and has the fiduciary abilities your individual trustee may lack. Make sure this trustee team can work well together.

Arizona Fiduciary Licensing Program
Note: Here in Arizona, there is a benefit for the elderly called the Arizona Fiduciary Licensing Program. This program is designed to help ensure Arizona’s elderly, mentally incapacitated and other vulnerable citizens have licensed individuals or businesses managing their financial affairs, medical decisions and other vital matters.

How to Cut The Lousy Kid out of Your Will

You haven’t heard from him in 10 years, since he stole the money in your bank account. Or for many other reasons, he or she is a bad seed and you don’t want him or her to inherit your estate? It is possible to disinherit a child from your Will or Estate in most states in the U.S. The key to successfully writing a child out of your will or estate is to make it clear that this is a deliberate decision and to take careful steps to have all your estate planning documents in order.

Make your decisions
Disinheriting a child shouldn’t be done in a fit of pique. I always advise my clients to take time and deliberate carefully over the issue. I encourage them to take every step possible to heal the breach including things like mediation or family therapy. I ask my client to think carefully if they want their last legacy to their child to be a final word of disapproval. There is no forgiveness after death. But okay….

Of course, there are circumstances where a child may have done nothing wrong, but you still need to cut them out of the estate plan. You may decide that you need to devote your entire estate to the care of a child with disabilities, especially if your other children are successful and don’t need as much assistance. If you do make this kind of decision, talk it over with your other children so they understand your thoughts and won’t be shocked when your Will is read. If you do not provide an explanation either before or after you die, there is going to be resentment. Your perception of your action is not that of your children. But okay….

Get your paperwork in order
Once you’ve made the decision to cut a child out of your estate plan, the next step is to carefully detail your assets and the person or person you wish to inherit each asset. Decide on an executor, who will be responsible for administering your estate and making sure the transfer of assets goes smoothly and ends up with the correct parties. Then ask your estate planning attorney to help you prepare all necessary documents to back up your decisions.

It is not a bad idea to draft a provision mentioning each child you wish to cut out of the Will. Name and identify each one and specify that they are to receive nothing, although some states require you to leave each child a token amount, such as $1. It is a very bad idea to fail to mention the child you wish to disinherit. Do try to avoid derogatory language and clearly state your position and concerns. Be cautious though. If your explanation is not well written it could be used as a means to challenge the will. A good estate planning attorney will know the rules of your estate and can help you create the proper documents.

No Contest Clause
No contest clauses in estate planning disinherit an individual if they contest or object to a Trust or Will or any of its provisions, restrictions or conditions. Such a clause should be included in a Will and/or Trust to protect the estate plan no matter what. When you are going to disinherit a child, it is a must.
People using to think leaving a $1 will work as an effective disinheritance. That is not such a good idea. It is probably better to leave a higher value to discourage any contest.

Avoid inadvertent disinheritance
Without a proper estate plan or Will, you can inadvertently disinherit children. For instance, you’ve married a second time and die intestate (without a Will or estate plan). It is possible that the community property laws in your state may take over and your second wife inherits everything, when you actually wanted the children of your first marriage to inherit.

Gregory C. Poulos
Poulos Law Firm, PLLC
11120 N. Tatum Blvd, Suite 101
Phoenix, Arizona 85028
Phone: (623) 252-0292

Build Your Estate Planning Team

Estate Planning is a process – not a transaction! There are many moving parts in your plan that need to be coordinated to get the most benefit you can. That’s why you should put together and work with a team of estate planning advisors to help you get it right. Many people already have these advisors in place, but often they are not used in a team environment. That is a lost opportunity for you.

Your Attorney
First, of course, you should select an estate planning attorney. The attorney should have a solid reputation and years of estate planning experience. The attorney should also have an appreciation for being part of your “team” and not operate in a vacuum. Then you need to involve other advisors like your financial planner, accountant, banker, insurance agent or broker, and perhaps your religious advisors. These team members should mesh well together to make sure your estate plan is coordinated on all levels. If one advisor is not focused on collaborating with the others, then it might be time to find someone who is a team player. More and more, professionals in these fields are open to the synergy created by an estate planning team, so you shouldn’t have to settle for someone who won’t play well with others.

Why Involve Your Accountant
Accountants are not just for taxes. An accountant has information essential to the selection of the appropriate estate planning techniques for you, such as the your present and prospective net worth, asset mix, present and future cash flow needs and family concerns (both financial and nonfinancial) i. In addition, accountants regularly have access to your personal information to determine whether you are complying with estate plans once it is put into place and whether you are or are not taking action inconsistent with the estate plan.

Why Involve Your Banker, Insurance Agent and Financial Advisor
It is vital that you have not only a strong estate plan, but have your finances and assets secured as well. Bankers, Financial planners and Insurance agents should work hand in hand with estate planning attorneys to make sure your goals are consistent and can be carried out in the way you expect them to. All three of these professionals will provide important information to your estate planning attorney. That information might include things like the nature of your investments, insurance coverage and information about the beneficiaries or your policies, the value of retirement accounts and annuities, and much more. They mainly ensure that your accounts are properly funded into your Trust, and ensure that you comply with all current laws.

Why Involve Your Family
Communicate, communicate, communicate! We’ve all heard horror stories about families who end up embroiled in feuds over money after a loved one passes on. More often than not, this is because the terms of the Will or Estate come as a shock to them. If you take the time to discuss your estate plan, financial status and motivations with your loved ones, your estate plan will be less prone to challenges later on and provide peace of mind for family members who will understand what you’ve done and why. It could also be important to have the benefit of older family member’s experiences both good and bad with estate planning. Often they can give advice on good choices for fiduciaries, guardians and other important decisions.

Why Involve a Religious Advisor
Estate planning is a personal process that should reflect your values, family circumstances, and even religious beliefs. Some religions have specific rules about what should happen to your property after your die. Other religions have viewpoints on end of life decisions. A religious advisor may also be available to guide you in dealing with difficult family issues. Involving your religious advisor in the estate planning team will help ensure your commitments to your faith are carried out.

Extend Your Love: Choose a Guardian for Your Children

Choosing a possible guardian for your children could be one of the most important gifts you ever give your kids. Planning for your own death is depressing and unpleasant, but for parents with young children, selecting a guardian is a way to extend your love, share your child care philosophy, and ensure your children’s future if you aren’t there.

Sometimes it is a good idea to nominate or select two people to care for your children. They might work together or one can be a guardian, while the other can be a trustee of the funds dedicated to care of the children. This is a great ways to place checks and balances to make sure your assets are used as you want — for the care of your kids. In addition, it is a good idea to select a backup for each of those people in case something happens and they are unable to perform their duties. Oh, and don’t forget to ask them if they are willing to take on the responsibility of being a guardian!

Dig deep when considering the options when selecting guardian(s). Family members may not necessarily be your best option. Sometimes a friend may be a better fit than a family member – especially where your assets and financial situation are concerned. Ask yourself hard questions like, “Does your chosen guardian reflect your parenting philosophy, religious or personal values? Do they live nearby? How will your children fit into their home and lifestyle? Is the household stable?”

Don’t exclude someone because he or she might not have the financial resources to care for your children. You can establish a trust, funded through assets or life insurance that can ensure the guardian does have the proper funds to care for your children.

Once you select a guardian(s), be sure to discuss your plans and expectations with him or her (including any financial or trust arrangements). You must allow your guardian(s) time to consider your request.

While it isn’t necessary to have an attorney create your Will or Estate Plan (although, of course we recommend it), where young children are concerned, it is probably a good idea. The legal documents you create should be clear and legally binding since you won’t be around to clarify details.

Here is one other thing to consider: If you die intestate (without a Will) it’ll be up to state law to decide what happens to your assets – more often than not they split equally among surviving children if there is no surviving spouse. But what if one of your children is mentally or physically challenged and requires more care than the others? It’s up to you to create an estate plan to care for that child and to make sure the assets are available to do so.

Writing a Guardianship Letter
Most parents think about who might be a good guardian for their children based on their relationship to them. But most parents do not have a discussion about what they actually want the guardian to do in raising the children. There is usually just an assumption of what will be done. A Guardianship Letter is a way to communicate your values and desires for your children.

One of the ways you can help someone who might have to take over for you is to create a letter of instruction for the potential guardian.

The types of things that can go in such a letter are:
• Detailed information about your child’s healthcare.
• Information about your children’s activities
• Where your child’s important papers are…i.e., birth certificate and social security number
• Your religious beliefs, practices and preferences for your child.
• Your views and expectations for your child’s education;
• Information about your family and important people.
• Information about your child’s personality and preferences.

Just imagine how your child will be raised without this information. The guardian will make these decisions which may or may not be consistent with your wishes. While a guardianship letter is not legally binding, it can provide useful insight to both guardian and children. It should be stored with the parent’s last will and testament or trust.


What are Advanced Directives?

What are Advanced Directives?

Life is unpredictable. While no one wants to contemplate something bad happening, either to themselves or to their loved ones, it is important to be prepared. If something bad does happen, advance directives like a Living Will and a Medical Power of attorney come into play. These directives ensure that your family can act on your behalf and understand and will follow your wishes, and should be an important part of your estate planning.

Living Will
A living will is a written statement detailing your desires regarding medical treatment in circumstances where you are no longer able to give informed consent. It is your way of expressing your wishes of what you would want regarding your for end-of-life medical care in circumstances in which you are no longer able to express informed consent. Without a Living Will expressing your wishes, family members and doctors are left to guess what you would prefer in terms of treatment

Power or Attorney
A medical power of attorney appoints someone you trust to act on your behalf on medical decisions if you are unable to speak for yourself. This person will make any necessary health care decisions for you and make sure you receive the type of care you would want. You may choose one person to speak on your behalf on medical matters and you can appoint a different person to handle your financial affairs with a financial power of attorney.

Do Not Resuscitate Order
A do-not-resuscitate order, or DNR order, is a medical order written by a doctor. It instructs health care providers not to do cardiopulmonary resuscitation (CPR) if a patient’s breathing stops or if the patient’s heart stops beating. It allows you to choose whether or not your want heroic measures used to save your life BEFORE an emergency occurs. It does not provide instructions for other treatments, such as pain medicine, other medicines, or nutrition. The doctor writes the order only after talking about it with the patient (if possible), the proxy, or the patient’s family.

Arizona recently passed laws making it easier to create advance directives — and make it easier for health care providers to be aware of your wishes. The program is called the Arizona Advance Directive Registry. The registry allows people to download forms from the website and then file the completed forms with the registry so that they are accessible to health care providers here in Arizona in case of emergency. According to the Arizona Secretary of State’s office, 32,266 of residents are already signed up for the registry. In addition, all healthcare providers in the state have access.

The registry requires that you create a login and password, which means that unless you’ve shared that information with your family, they won’t have access. (NOTE: See our previous article on Digital Assets). In short, you must still let your family, friends and physicians know what your wishes are. You may even want to provide them with copies of the documents.

I am cut out of the Estate! Now what?

When a loved one dies, the trauma of the death is bad enough, but then the distribution is revealed and the terms come as a shock to the beneficiaries. Image this … daughter Judy gets everything and the rest of the family gets little or nothing. Worse yet, a “No Contest” clause has been added to scare the family or friends into not challenging the Will. How could this happen? Sadly, when it comes to money, people are greedy. Even if their reasons were valid, they usually do not communicate those reasons – leaving a lot of hurt feelings.

But what if something does not seem right and you suspect foul play?
You do have options. You should first have an attorney review the terms of the Will, but most important, you need to understand the process to contest it. Arizona has a statute governing the validity of no-contest provisions in wills, but there is no statute expressly covering similar provisions in trusts. In order to contest a Will in Arizona, you must prove that the deceased person either:
• Lacked the testamentary capacity to execute a will
• Was under undue influence
• Executed the will as a result of fraudulent misrepresentation
• Executed the will by mistake
• Or the Will does not meet the legal formation requirements

These terms and conditions sound complex and full of legal jargon, but their meanings are actually pretty simple. Let’s look at each of these things individually.

Testamentary Capacity
Testamentary Capacity is a legal term that simply means the person creating the Will must be 18 years or older. The person must also have the mental capacity to create the Will, meaning your loved ones understood what they are creating and understood the property issues and assets involved. If any of these elements are not met, the Will may be contested.

Undue Influence
A Will may be contested if a third party has influenced the mind of the creator. This tends to be a bit of a gray area, but in general, the court may explore the following questions:
• Did the 3rd party fraudulently misrepresent himself or herself?
• Was the Will created in haste and without careful consideration?
• Was the creation of the Will kept secret from other beneficiaries?
• Were those beneficiaries instrumental in preparing the Will?
• Was the Will consistent with prior versions of the Will?
• Was the Will consistent with the creator’s lifestyle and family views?
• Was the creator susceptible to undue influence?

Let’s take, for example, a daughter who is caring for her mother, who is experiencing a bit of dementia — in short, is not of sound mind. The daughter believes she has a greater right to inherit her mother’s assets than her siblings, due to her caregiving. So, she influences mom to change the terms of the will to provide her with the lion’s share of the estate and reduce the amount her siblings or other beneficiaries should receive.

In this case, the other siblings or potential beneficiaries can contest the Will, however, it is up to them to provide proof that the mother was not of sound mind and didn’t understand what she was doing. They must also prove undue influence.

Another situation, which is unfortunately becoming too prevalent, is when a homecare person takes advantage of a person under their care and convinces them to make them a beneficiary.

Fraud by Misrepresentation
A will may be contested or invalidated if fraud by misrepresentation is involved. Fraud by misrepresentation means that a beneficiary made false representation of material fact (lied) and knew he or she lied in order to induce the person to change the will in his or her favor. The lie caused the creator to make the Will different that is would have been without the misrepresentation. That sounds complicated, but here a simple example. Let’s assume a son lies to a parent about his financial status telling the parent that he has no money and is worried about his financial future, when in fact he is very well off and is concealing his assets. Based on that lie, the parent changes his or her will to favor that child above the children or other beneficiaries.

A mistake in the creation of the Will can allow it to be challenged and set aside. This is rather rare, since it generally means something like the husband signed the wrong document — his wife’s Will rather than his own, for example.

Formation Requirements
Wills many be created or formed only under certain circumstances:
• The person must be age 18 and of sound mind
• The Will must be signed by the person or signed by a designated representative who signs in the presence of the person
• The Will must be signed by two witnesses, who must witness the actual signing by the person or his or her representative
• The person must have the intent to execute his or her Will

No Contest Clause
A “No Contest” clause is a legal provision that states that if a beneficiary challenges any portion of the Will, he or she will be disinherited. These clauses however are not always clearly written and might leave the door open for a challenge. Also, the statute governing wills in Arizona provides that a no-contest provision is “unenforceable if probable cause exists” for the challenger to file the contest. In other words, if there is “smoke” about a possible challenge, the court won’t close the door to hear whether there is “fire.” That means, if you might be able to really prove fraud, or undue influence, or if a mistake is made, the No Contest clause may not be able to stop you.

If you believe the circumstances surrounding the formation or execution of another’s Will are questionable, please contact me immediately to determine your rights. Time is often critical in this issue so do not delay if you feel a friend or family member’s Will should be reviewed as part of its probate.