20 Common Mistakes Made By Families In Probate And Estate Planning Matters

Presented by Thomas J. Murphy to
Ahwatukee Foothills Networking Group
August 1, 2006

The 6 essential documents for all families:
Will (with testamentary trust for minor children)
Financial power of attorney
Health care power of attorney
Living will (aka advance directive)
HIPAA medical release
Health care authorization for minor children

1. DYING WITHOUT A WILL
Property does NOT go to the state if you die without a will.  Rather, there are laws that, in effect, create a will for you.  Those laws state that everything passing through probate goes to the surviving spouse unless there are children from a prior marriage.  In that case, the estate is split between the surviving spouse and the children – 50% to spouse, 50% to the children.  If not surviving spouse, then the entire estate is divided equally among the children.  ARS 14-2101 et seq.

2. HAVING A WILL DOES NOT AVOID PROBATE
A will has no legal effect unless it submitted to the probate court.  Think of a will as nothing more than a letter to the judge telling the judge how you want your property distributed upon your death.

3. A WILL ONLY APPLIES TO PROPERTY PASSING THROUGH PROBATE
The terms of a will do not apply to whomever is named as a beneficiary on life insurance policies, annuity contracts, retirement plans, jointly titled accounts, accounts with a POD (payable on death) designation or real estate that has a beneficiary (POD) deed

4. NOMINATE GUARDIANS FOR YOUR CHILDREN
In your will, you can state who would like to be guardians of your children if both parents die or become incapacitated.  The nominee gets priority although it is always ultimately the judge’s decision as to what is in the best interests of the child.  You can also name who you do NOT want as your child’s guardian.

5. PETS
State who will take care of your pets and state how that person will be paid for the pets care.

6. CHARITIES
If you want to leave money to charity, you have to say so in a will or beneficiary designation.

7. JOINTLY TITLED ACCOUNTS
Title on account may be inconsistent with will and other estate planning documents
Example – mom and daughter on account but will says equally to all children

8. JOINTLY TITLED ACCOUNTS
Avoids probate on first death but guarantees probate on second death

9. POD/TOD DESIGNATIONS
Much better than jointly titled assets.  Only requires death certificate to transfer title.
Be careful that beneficiaries are consistent with will

10. TRUSTS FOR MINOR CHILDREN
For families with minor children, we always advise that a will contain a testamentary trust, aka a “Symington” trust.  This prevents an 18 year old child from gaining access to his/her entire inheritance.  As long as the funds remain in the trust, it also prevents the child’s creditors or future ex-spouses from gaining access to those funds.  Even the best children can still suffer financial reversals, so there is always a need for these trusts even when the children become adults.  The most common approach is to stagger the distributions – one-third when reach age 25, one-third when reach age 30 and remainder when reach age 35.  Many parents only allow distributions if college or other important goals have been completed at that time.

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11. POWER OF ATTORNEY IS NEEDED
Want to have it be “durable” – valid if incapacitated
In Arizona, must comply with ARS 14-5501 et seq.
Witness and notary
Express gifting authority
Power to sell real estate
Extremely important for business owners to name someone to manage the business if the owner becomes incapacitated.

12. GIFTING
Do not gift highly appreciated assets when death is foreseeable
Lose step-up in basis, the biggest tax break for many individuals

13. UPDATE ALL BENEFICIARY DESIGNATIONS
Recent United States Supreme Court case shows danger of failing to keep beneficiary designations current. Husband and wife divorce.  Two weeks later, husband is killed.  He had never removed his ex-wife as the beneficiary designation on his retirement plan.  Children from first marriage claim an interest in the retirement proceeds.  Supreme Court says ex-wife was still named as beneficiary so she gets it all.

14. PLANNING FOR INCAPACITY
Appointment of a guardian and/or conservator requires a probate proceeding that is time-consuming and expensive.  Can be avoided through living trusts and powers of attorney.

15. PLANNING FOR THE NURSING HOME
If the costs of the nursing home or other health care is greater than a family’s income, then applying for Medicaid (AHCCCS in Arizona) is a real possibility.  Proper planning can save tens of thousands of dollars, even after a person has been admitted to a nursing home.

16. RETIREMENT PLAN DISTRIBUTIONS AFTER DEATH OF OWNER
No step-up in basis
IRD — Income in Respect of a Decedent
Beneficiary pays income tax when received, unlike other inherited assets

17. PLANNING FOR HANDLING OF YOUR REMAINS
Family members may conflict as to what to do with your remains, such whether you should be cremated, where you should be buried, whether anatomical gifts should be made or whether an autopsy should be performed.
Unless otherwise stated, surviving spouse has priority in determining disposition of your body.  ARS 36-831.  Can be a real problem where there are children from a prior marriage.

18. PAY FOR FAMILY TRAVEL TO FUNERAL
Will your estate pay for the travel costs of family members or close friends who travel to Arizona for your funeral?  Your will should address this.

19. RELEASES FOR MEDICAL INFORMATION
The federal HIPAA privacy regulations essentially allow for a doctor or other health care provider to only speak to the patient and that the doctor can only speak with other persons if the patient expressly says so.   This can create a real problem if the patient cannot communicate with the health care staff.  A HIPAA medical release is strongly encouraged to allow access, but not decisionmaking authority, for family members, in-laws, close friends, business associates, minister/priest/rabbi, financial advisors, attorney, etc.

20. NEED TO KEEP GOOD RECORDS
Very important to keep records when stocks are purchased in order to determine basis when those stocks are later sold.  Also, make sure documents like life insurance policies and savings bonds can be found.

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