Top 5 Estate Planning Mistakes to Avoid

Passing on your estate and assets to your heirs is serious business, and there’s very little room for error. For instance, what happens if your executor or trustee passes away before you do and you didn’t update your estate plan to reflect that? What happens if you remarry and your ex-husband is still named in your estate plan but your current spouse is not? Generally, mistakes like these end up with your heirs and beneficiaries fighting in court over the problems your carelessness caused.

Here are 5 mistakes many people make when creating their estate plan. While your estate plan doesn’t have to be perfect, the closer you can make it, the less likely you are to disturb your family’s harmony.

1.Failure to Update Beneficiary Form
Life changes happen to all of us … marriage, divorce, birth of children, loss of loved ones, etc. Once the joy or grief has passed, it’s time to think about updating all your beneficiary forms as needed. IRAs, retirement plans, annuities and life insurance policies aren’t controlled by your estate plan, but by the beneficiary designation forms you completed. Fail to update these and it is possible the wrong people could inherit your estate. Just as important is completing the alternate beneficiary designation section of these forms. Something could happen to your beneficiary before he or she inherits, which is why it is smart to name an alternate person. If you fail to name a beneficiary or alternate (it happens more often than you think) your estate could go into probate and take a long time to be settled to say nothing of expense.

2. Selecting the Wrong Person as Executor or Trustee
The executor (in Arizona the Personal Representative) or trustee of your estate is a key player in your legacy. He or she implements the estate plan you have created, but if that person doesn’t pay attention to details or pursues his or her own interests instead of your wishes, it could be a disaster. Find people you trust, who are honest and lack conflicts of interests. These people should understand your objectives and be willing to carry them out. Sometimes a group or professional company is better than a single person.

3. Appointing the Wrong Person for Powers of Attorney
If you become ill or unable to exercise your mental powers, your attorney- in- fact (the person you name)will act on your behalf to make financial decisions. It is no different than if you were writing the check. If you name the wrong person — a person who has his or her own agenda or is irresponsible — it is likely to upset other family member and end up in ugly court battles. Consider appointing a person who isn’t likely to collude against members of the family. Problems often arise between siblings in this regard.

4. Hiding or Not Sharing Your Estate Plans
Not knowing is the most frequent cause of family arguments over an estate. If you share your plan and intentions with your family before you pass away, they won’t be surprised and will be more accepting of how the assets are being distributed. Don’t distribute copies of your plan, but discuss it with all family members concerned. There is no need to discuss the actual money or property involved, but the general plan discussion is important. If your executor or trustee isn’t a member of the family, it might be a good idea to introduce family members to him or her well in advance — again, so there will be no surprises.

5. Failure to Update Your Plan
Failure to make updates to your estate plan can be devastating for family members. If you fail to update after a life change to account for — a divorce, death of beneficiaries, changes in net worth, changes in tax law — then your obsolete plan may end up in court no matter how your tried to avoid that. You should consider meeting with an estate planning attorney on a regular basis, but no less that every three years, just to discuss whether there has been any changes in your family, your finances or in the law.

Identify Your Assets

No one likes to contemplate their own mortality, which is why so many people fail to plan how their assets will be distributed when they pass on. However, assessing your assets and goals is critical if you don’t want your heirs to end up in probate court waiting for your assets to be decided on by the state of Arizona.
By tackling the tough job now, you get to name the people you wish to receive your assets. You can arrange your estate so that taxes do not become a burden to your family and friends. And finally, you will have the peace of mind that comes with knowing your financial affairs are in order.

Step 1
The first step is take stock of all your assets. Assets may include investments, bank accounts, retirement accounts, insurance policies, real estate, business interest, as well as personal possessions.

Step 2
Step two is to decide what your goals are for these assets and who you want to inherit them. This is also the time to think about people you would trust to handle your business affairs and medical care in the event that you become incapacitated.

Step 3
Once your created your estate plan, be sure to discuss it with your heirs. By clearly outlining your intentions, you may prevent friction between family members after you die.

Step 4
The laws governing estate planning, tax exemptions and other aspect vary constantly, which is why it is a good idea to review your estate plan with your attorney on a regular basis. You want to protect as much of your assets as you can and prevent your heirs from inheriting a huge headache.

Ethical Wills

When you get right down to it, estate planning is all about preserving family values and traditions and promoting family harmony. So ask yourself these questions:

  • If you were gone, would your family know how much you cared for them?
  • Would they know about what was important in your life?
  • Would they feel a continued connection with you?
  • Would they understand how and why you designed your estate plan?

An Ethical Will can help you craft a value statement to let your loved ones know your morals and values — morals and values you hope they will embrace into the future. It is where you can have the opportunity to say many things that you might not otherwise say.

Ethical Will Workbook

The first step in creating an Ethical Will helps you determine what values and traditions are important to you — values and traditions you want to pass on to your family. That’s where our unique Ethical Will Workbook can help. In it, you’ll be asked to identify the top five virtues you value, your favorite places, people, music, charities and more. These are the building blocks needed to create an ethical will. The workbook also provides several examples of ethical wills to help you get started on creating your own message for your loved ones.

Get started right now by downloading this Ethical Will Workbook!

Supporting Your Ethical Will

While most people, and lawyers for that matter, focus on estate planning “documents”, Here at the Poulos Law Firm we believe that your values and the preservation of family harmony should coordinate and be expressed in your plan. Of course, the next step is create a last will and testament, a trust, power of attorney — whatever legal documents you need to support of your morals, values and traditions (your Ethical Will). Poulos Law Firm will help you every step of the way with guidance and legal advice and documents to continue your legacy into the future.

How Poulos Law Firm Can Help

At Poulos Law Firm, it is very important for us to establish your goals and traditions first, before we proceed in creating an estate plan that will promote harmony in your family for generations to come. Once the Ethical Will and goals have been established, we then provide the following:

  • Counseling on how to set up an estate plan (and talk to your heirs) to minimize family disharmony
  • Counseling on the selection of a person(s) to serve as financial fiduciary (selecting an executor, trustee or agent with your financial power of attorney).
  • Counseling on the selection of a person(s) to serve as a health care fiduciary (medical power of attorney)
  • Creation of documents like wills, revocable or irrevocable trusts, powers of attorney, living wills and more.
  • Addressing the issue of gifting and loans

Arizona Probate Laws

Probate describes a process where the Superior Court of Arizona appoints a personal representative of the estate of the deceased person to oversee certain tasks. Under Arizona probate laws recently passed, a person who is going to serve as a Personal Representative must take an online training course before they can be appointed.

Probate is needed to certain transfer property whether you have a will or not.But before we go too far, there are a couple of definition you should understand.

Dying “intestate” means the person did not have a will. In that situation who gets their property is determined by the probate laws of Arizona, not by them. If the person had a will, that is called dying “testate” If all of the persons property is in joint names or if there is a designated beneficiary, it still may not be necessary to probate the will.

So the normal way we transfer ownership of property that comes with a title is to sign the title over to someone else. An example is signing the back of your car title to transfer it to a purchaser. After a person dies, signing their name becomes a little difficult. And so a Court must authorize another individual called a “Personal Representative” to sign transfers of titled property for the decedent.

If the deceased had no assets or if no assets remain titled in the name of the deceased, then a probate is probably unnecessary.
Second, if there are probatable assets, look at the amount. If the real property located within Arizona does not exceed $100,000 (after liens like mortgages), and at least 6 months have passed since the death the real property can be transferred by affidavit. If the personal property in the estate is worth $75,000 or less, it too can be collected by affidavit. Probate generally takes about 5 months, longer for estates that are more complicated or contested estates.

What are the duties of a Personal Representative?

Those tasks a Personal Representative must do include:

  1. Discovering, collecting and completing an inventory all of the deceased assets* (some assets may have transferred automatically upon death, but some may still remain titled to the deceased).
  2. Paying final expenses, if any
  3. Addressing any creditor claims, if any
  4. Filing last tax returns and paying taxes (if necessary)
  5. Distributing remaining assets to heirs

* Assets can include: real estate, bank accounts, certificates of deposit, stocks and bonds, membership interests in a business (like an LLC), investment accounts (like T. Rowe Price, Schwab or Etrade), retirement accounts (IRAs, 401(k)s, pension plans, profit sharing plans, retirement plans), life insurance plans, and vehicles and boats.

How long does probate take?

Assuming there is no one challenging the will or otherwise fighting over the estate, it will likely take 5 to 6 months to complete.

Is a Personal Representative paid?

The PR is entitled by law to “reasonable” compensation. This is usually done on an hourly basis, so the PR must keep track of the work they do and any expenses.

How is the probate lawyer paid?

Unlike other states that provide for legal fees as a percentage of the estate, there are no such rules in Arizona. The only restriction on legal fees is they have to be “reasonable” considering the size and complexity of the estate.

Should probate become necessary, Poulos Law Firm is ready to help walk through the process step by step.

financial power of attorney arizona

Financial Power of Attorney-Arizona

financial power of attorney arizonaA financial power of attorney is a written legal document that allows you to give authority to another person to make financial and legal decisions (and financial transactions) on your behalf.

Sometimes, making your own financial decision is not possible. You might be traveling in remote areas for extended periods of time, or an illness or injury has incapacitated you. In these instances, having a designated person that your trust to make decisions for you and act on your behalf can be critical.

A financial power of attorney can be limited or general. Limited financial powers might mean your chosen person can read your mail, pay bills and sign checks on your behalf. It can also be arranged so that your designated person can conclude a single transaction for you — like a real estate deal. A general financial power of attorney gives your designee broad powers to act in any financial capacity on your behalf.

Make the selection of your attorney-in-fact (your chosen person) very carefully. Because this position is not overseen by the courts, they can be in a position to do you great harm.

divorce

Divorce? Update Your Estate Plan, Or Else

divorceOften overlooked in the divorce process is the need to update estate planning. Most people would agree that their ex-spouse is the last person they want to inherit their assets when they die—or to make life and death decisions for them. But that is exactly what can happen – and often does – when these documents are not updated.

Beneficiary Designations

Assets that have beneficiary designations (e.g., life insurance policies, employer retirement plans, IRAs, annuities, health savings accounts, investment accounts and some bank accounts) are not controlled by a will or trust. Instead they will be paid directly to the person listed as beneficiary. Since most married people name their spouse as their beneficiary, these should be changed right away. However, naming the right beneficiary is critical. This is especially true for tax-deferred plans because of possible estate and income tax issues and the potential for long-term tax-deferred growth. Be sure to seek expert assistance before naming a beneficiary on these accounts.

Children and Other Beneficiaries

If you name children as beneficiaries and they are minors when you die, a court guardianship must be established for them until they become age 18—at which time they will receive the entire inheritance. Until then, the other parent (your ex-spouse) could be named by the court to manage the funds. Naming another individual (for example, your parent or sibling) as beneficiary with the understanding they will use the money to care for your children until they are older is also risky. You have no guarantee they will follow your instructions, they may be tempted to use the money for their own needs, and the money would be exposed to their creditors.

Naming a trust as the beneficiary instead and selecting your own trustee (which may still be your parent or sibling) is a much better choice. A trustee can be held liable if he/she misuses the trust assets. An ex-spouse can be prevented from having access to the money, and you can control when your children will inherit. Money that stays in the trust is protected from irresponsible spending, creditors, and even spouses. For all these reasons, a trust is an excellent choice as beneficiary instead of an individual, regardless of his/her age.

Your Will and/or Living Trust

  • If you do not update your will or trust, your ex-spouse may inherit your assets. If he/she remarries, then on his/her later death, their new spouse and their children could inherit your assets, leaving your children and family with nothing. If you provide support to your parents or others, be sure to include them in your estate plan.
  • If you have minor children, you need to name a guardian for them in your will. Even if you have a living trust, a simple will is required to name a guardian and to direct any forgotten assets into your trust. Upon the death of one parent, usually the surviving parent will become the sole guardian, but if your ex-spouse has also died, had his/her parental rights terminated, or becomes an unfit parent, the court would have to appoint a guardian and would appreciate knowing your choice.

Powers of Attorney

Powers of attorney allow someone else to carry out your wishes in your name. Most married couples give each other the power to make health care decisions, including those regarding life and death. Financial powers are also usually given to each other so that one can manage the other’s financial affairs without interruption. These are often quite broad, including the ability to buy and sell real estate, open and close financial accounts, change beneficiary designations, collect government benefits, etc. Instead of your ex-spouse, you can name a parent, sibling, close friend or adult child to have these powers and act for you when you cannot.

Wills Vs Trust

Which should you choose? A will or a trust? What is the difference between the two? Both a will and a trust protect assets and indicate who will receive them upon your death, however, they work very differently. Let’s take a deeper look at wills vs trusts.

For many people, whether a will and power of attorney or a revocable living trust is best for them is their first consideration in Estate Planning. Most want to know which one is better at accomplishing their estate planning goals. In almost every case the trust will handle each of those tasks better than a will and powers of attorney. However, the decision of which one to use in most situations is resolved by looking at the cost versus the benefit. Will the extra upfront cost of creating a living trust generate enough savings of time or money for you or your heirs it is the right choice.

Wills

A will spells out how your property will be distributed when you die. It cannot make any provision if you become incapacitated. It can be revoked or amended any time before your death. A will still requires a family to go through a court process known as probate, which can take time and be expensive.

Trust

A trust is a written agreement designating a trustee who will be responsible for managing your property. If you are healthy, generally you remain the trustee, but you can name another to fill in at any time should you become ill or become incapacitated. When you die with a trust in place, the assets are transferred directly to your heirs without the lengthy probate process.

Most people do estate planning for one or more of these four goals:

  • To minimize taxes. Usually, but not always, that means estate taxes.
  • To avoid probate, or to simplify matters for their heirs or successors.
  • To control the way their assets are used after their death.
  • To make it easier for someone to handle their affairs if their own incapacity occurs or disability.

So how do those four estate planning goals relate to the wills vs. trust question?

Taxes

Few people must worry very much about estate taxes these days. With a federal estate tax exemption set at $5.25 million in 2013, and no Arizona state estate tax at all, only a tiny fraction of clients have estates large enough to make their decisions on the basis of tax effect.

Probate avoidance

Arizona’s probate process is not nearly as complicated as people think and can often be done by non-lawyers. It is also not nearly as expensive. The main concerns with probate is that is public – everyone can see the will and assets under probate – and that it is often difficult to get this done when a family is grieving. And, of course, if someone objects and a family or creditor dispute arises, the costs and time needed will escalate.

What most clients say is that even with modest probate costs, going through the legal steps at a time of emotional upheaval is something they wish they could have avoided. In Arizona, the cost of preparing a living trust (and “funding” it — transferring all your assets into the trust’s name) will usually be less than the cost of probating your estate later. But not necessarily by much.

If you are married, you are probably comfortable putting most or all of your assets in “joint tenancy with right of survivorship” or designating your spouse or children as beneficiaries. This can lead to problems when the property goes to the next generation or, yikes, to a new spouse. Putting children or other beneficiaries on your bank and stock accounts as joint owners is almost never a good thing to do.

Control

What you do with your assets while you are alive or what you want to happen after your death is a question of control. There are many situations where members of your family should not get outright control of their inheritance whether you are alive or not. Perhaps you wish to leave a legacy for your children or grandchildren for their schooling or other similar goals. The best way to address these types of issues is, in my thinking, is by using a trust with a trustee who you instruct on what you want accomplished.

While you can create a trust in your will — what we lawyers call a “testamentary” trust, it will cost you more than a will without such a trust, and the difference between the cost of a will (with your testamentary trust) and a living trust will shrink. So if you need (or just want) to control the uses of your funds after your death, you might be a better candidate for a living trust.

Your own incapacity

This is why you should sign a power of attorney. It is simultaneously one of the most important documents in your estate plan, and the single most dangerous one. The cost of going through the courts (in a probate-like proceeding called a conservatorship) is usually high and the invasion of privacy significant.

There are some times when a power of attorney just won’t solve the problem, though. Plus it is hard to predict when those times arise. Banks, title companies, the federal and state governments — none of them are required to accept the power of attorney and many do not. If you sign a living trust and transfer all of your assets to it, though, the problem becomes simpler and narrower: if your successor trustee can show the item the trust calls for (like a letter from your doctor, for instance), then the successor trustee just takes over. There will probably be somewhat fewer problems administering your affairs with a living trust than with a power of attorney.

Conclusion

So should you be considering a living trust as part of your estate plan? Each situation is obviously different, but at a minimum if you fit into one or more of these following categoris, you may be a a better candidate for a living trust rather than just a will:

  • You are older
  • You are not married or if you are married, don’t want to use joint ownership as your estate plan
  • You are wealthy and may face estate taxes
  • You have children who are not children of your spouse
  • You have complicated assets
  • You have real estate in more than one state
  • You have beneficiaries with special needs, inability to handle money or other similar considerations

Clearly, this is just a broad outline of some general issues regarding wills vs trusts to generate some thought. You should be making your decision with legal counsel about what is best for your circumstances after a full evaluation.

Call today if you have questions regarding which you should use to protect your assets.