Arizona Estate and Trust Law Practitioners

Estate Planning in Arizona

Ten Answers You Need to Know

Question 1

We've just moved to Arizona; are our wills and trusts still valid?

In a word, yes. Wills and trusts that were properly signed in another state are valid in Arizona. However, I recommend that you have your estate planning documents reviewed by an Arizona attorney experienced in trust and estate laws in order to make certain that your residency in Arizona has not created any administrative problems.

Question 2

We've heard about community property; what is it?

In Arizona, property acquired by either spouse during marriage, except property received by gift or inheritance, is community property and each spouse owns an undivided one-half interest. Spouses can agree, however, by a "postnuptial" agreement, to retain property as the separate property of either spouse.

Question 3

Are there advantages to owning community property?

Owning community property can save taxes on capital gains. With certain limits, upon the death of one spouse, the basis for gain or loss of community property is "stepped" up or down to its date of death value even though a deceased spouse owned only an undivided one-half interest.

Question 4

With a $5,000,000 inflation-adjusted estate tax exemption, is it still important to plan for estate taxes?

For many clients, estate taxes will no longer be an issue in planning their estates. For other clients, estate taxes may continue to be a consideration. With the enactment of "portability" provisions allowing for the transfer of a deceased spouse's unused estate tax exemption to the surviving spouse, there are greater options in planning a married couple's estate.

Question 5

What if our estate is not taxable with a $5,000,000 inflation-adjusted exemption, but would be with lower exemption?

It is possible that the estate tax exemption could be decreased in the future, and that an estate that is not taxable with a $5,000,000 inflation-adjusted exemption would be taxable with a lesser exemption. In addition to electing to use the "portability," many of my married clients create or restate their existing trusts to "disclaimer" trusts which give all assets to the surviving spouse but allow the survivor to direct, by a written disclaimer signed within 9 months of the deceased spouse's death, the disclaimed assets to a separate, irrevocable trust. The assets in the irrevocable trust will be excluded from the surviving spouse's estate, although the survivor will have the income and, if necessary, the principal from this trust. This arrangement allows the surviving spouse to value the estate in light of the existing estate tax laws and determine whether a disclaimer trust will save estate taxes.

Question 6

Should everyone have a living trust?

Definitely not. For many, it may be an unsuitable and expensive estate planning tool. For others, however, it can provide an excellent way to hold and manage an estate, both upon disability and upon death, outside of the "probate" or court system.

Question 7

Will a living trust save costs because it avoids a probate proceeding?

Many times, a living trust does not save costs. Some states have statutory probate fees based upon the value of an estate. Arizona, however, has no statutory fees. Although the very nature of a probate proceeding does add to the cost of administering an estate, I think that, by and large, the cost savings benefits of a living trust have been oversold. My experience has been that large estate settlement fees result from the resolution of issues totally unrelated to whether an estate is being distributed through a probate proceeding or a living trust. These issues might be regarding income, gift or estate taxation and the valuation, sale, liquidation and distribution of assets.

Question 8

When do you recommend the use of living trusts?

I believe living trusts are preferable when estate taxes may still be an issue or when clients own real estate in several states. Living trusts can also be helpful when disability planning is a major consideration or when there are special arrangements needed for a beneficiary.

Question 9

In your experience, what have you found to be best way to assure that estate and trust administration will be as simple and as economical as possible.

Consolidate, consolidate, consolidate! The fewer accounts a decedent has simplifies the collection, re-registration and distribution of assets. I especially like the full-service brokerage accounts which can hold all types of securities. These accounts have full check-writing privileges, show the source of deposits, the payees of checks written and each month produce a readable statement showing transactions and account values. Duplicate statements can be sent to interested parties so that a separate estate or trust accounting will not be necessary. In addition, tax reporting is simplified with one Form 1099 each year.

Question 10

Does Arizona recognize living wills and medical powers of attorney?

Absolutely! My preference is for use of the medical power of attorney since it allows a trusted "agent" to assist in making personal health care decisions if you are not able to do so. The ability of an agent to weigh various factors after consulting with physicians and other healthcare providers creates, in my opinion, a better way for making decisions of this nature.

© Timothy A. Olcott, P.C. All rights reserved.