by Attorneys Charles E. Davis and Kevin G. Wick
1. Q: What is “Probate”, and is it something I should avoid? A: It is an expensive court-administered process for getting property from the name of the deceased into the hands of the heirs. The heirs are determined either by a Last Will and Testament or, where there is no Will, the statutes of Arizona, We suggest that if your estate is worth more than $50,000 you should take steps to avoid probate.
2. Q: Do I need a Living Trust? A: Regardless of the size of your estate, if you value keeping control of the disposition of your hard-earned assets and keeping your affairs out of the public eye, a Living Trust is for you. Even if you consider your estate to be smaller in value, your focus may simply be upon who is to receive your assets after your death, who should be in charge of its management and distribution, and avoiding the time, expense and public nature of a probate proceeding. If you consider your estate to be larger in value, your focus should be not only who is to receive your assets and when and the avoidance of probate, but also various ways to preserve your assets for your beneficiaries and to reduce or postpone the amount of estate tax which otherwise might be payable on your death. In addition, if you have young children or grandchildren who are intended beneficiaries, individuals with special needs, a blended family, or other like circumstances, a Living Trust is an absolute necessity.
3. Q: How does a Living Trust work? A: If it is properly funded it will avoid probate of the assets held by it and do with your assets whatever you designate without the need for any court proceeding. Trusts are extremely flexible and can be drafted to do just about whatever you want.
4. Q: What are the differences between: 1) a Living Trust, 2) a Living Will, 3) a Last Will & Testament, and 4) Powers of Attorney? A: A living trust is an amazingly flexible vehicle that allows you to designate with respect to your property not only who gets what, but also when and how. This grants you a tremendous amount of control over the disposition of your hard-earned assets. A living will is written instructions about your future medical care if you are unable to act for yourself. It expresses your wish to refuse or accept heroic treatment. A Last Will and Testament designates where your assets that are subject to probate should go. A Durable Power of Attorney authorizes people to act for you on legal matters if you are unable to act for yourself (e.g. you are unconscious, have had heart attack or suffer brain damage).
5. Q: Does a Living Trust protect my property from lawsuits or creditors? A: Generally, no. A Living Trust protects your assets from probate, but does not protect your assets from creditors while you’re alive. A Living Trust can be designed to protect assets from the creditors of your beneficiaries after you die, but this does not help you while you’re alive. But there are other ways to do this. Through the careful use of Limited Partnerships, Limited Liability Companies and/or specially designed Irrevocable Trusts, you can shield your assets from the claims of creditors. (See below for special uses of Irrevocable Trusts)
6. Q: Will my children have to pay estate taxes at my death? A: No. If there are taxes due, they must be paid before any distribution to your children. Whether there will be taxes to pay depends on the size of the estate (including life insurance payable on the life of the decedent) and whether the parties have done any estate planning to avoid the payment of taxes.
7. Q: How does my life insurance, IRA, or 401(k) affect my estate plan? A: It depends; but generally, those assets will be included in your estate for estate tax calculations, regardless of who the named beneficiary is on the accounts. Proper planning may avoid any tax on these amounts.
8. Q: How can I make sure that my children’s inheritance is not spent too quickly? A: By using a Living Trust that clearly states what they get, when and how. You can even design the Living Trust to cover the needs of handicapped children or those with addictions or other issues.
9. Q: How can I keep my children’s inheritance from going to an ex-spouse upon a divorce? A: By using a properly drafted Living Trust.
10. Q: Can I use a trust to keep the State from taking my assets if I need help from Medicaid? A: Yes. With the use of a specially designed Irrevocable Trust that you create while you are living, you can remain eligible for Medicaid benefits without losing your hard-earned assets reverting to the State. With this special planning, you can receive all income from the trust assets, including the right to live in any trust-owned real estate, but the assets in the trust are not deemed to be “countable” for Medicaid eligibility purposes.
If you would like to discuss your estate plan in detail, please call Davis Miles, PLLC and ask to be referred to one of our attorneys with expertise in estate planning.