Estate planning is a very complicated area of law and, because of that, there are many myths and misconceptions regarding it. Since all of us have lost or will lose loved ones, we will all experience some aspects of estate planning or the lack thereof at some point in our life. For that reason, it is vitally important to have the correct information when it comes to matters of estate planning.
Myth 1: Joint Tenancy is the best way to hold title.
Joint tenancy is an incomplete estate planning tool. A very common way to hold assets and property is called joint tenancy with right of survivorship. Typically, a married couple holds property this way. On the first death, a probate is avoided, with the survivor owning the asset. At the surviving owner’s death, there will be a probate to determine ownership. Also, if you are incapacitated, you will not be able to sign documents that need your signature causing a Conservatorship action with the Court, which is time consuming and expensive.
To avoid probate, some individuals choose to put their beneficiary on as a joint tenant, and are sometimes even advised to do this by well meaning advisers We do not recommend this method because it has major potential downfalls. First, by putting your beneficiary on that asset as a joint tenant, you have given them equal control over the asset. If you wish to sell the asset and they do not agree, you can not proceed. If you wish later to remove their name from the asset, you must get their permission. The other problem is that, because you have given them ownership in this asset, you are essentially making a “gift” to them in the amount of the assets value. This can cause potential gift tax concerns.
Myth 2: A Power of Attorney will take care of all our problems if I become disabled.
In Arizona, a Property Power of Attorney is a questionable tool. Often times the financial institution will require their own internal additional documentation to complete. However, the incapacitated individual will be unable to sign such paperwork and therefore forcing a Conservatorship action with the Court.
Myth 3: If I have a Will when I die, things will work out just fine.
The definition of “probate” is to “prove the Will.” When you create a Will, you are ensuring that your estate will have to pass through the arduous and expensive process of probate. In Arizona, a death probate is triggered if one dies with assets (cash, securities, retirement, insurance, etc) in their name valued over $50,000; and the trigger limit is $75,000 for real estate. If the trigger limits are met, the Will must go through probate with the court to determine who will be appointed the Personal Representative to be in charge of distributing the estate’s assets. This process is very time consuming, involving the resolution of disputes, paying creditors, inventorying/appraising assets and distribution of the estate.
Myth 4: I should name my children as beneficiaries on life insurance, bank accounts, etc.
If you name beneficiaries on your financial accounts, a probate will be avoided. However, there are circumstances when this is very dangerous. For instance, if a beneficiary is a minor (under 18 years), he/she will not be able to receive this asset. Instead, a third party would have to come forward and petition the court to become the minor’s Conservator. This process is considered a “living probate”, and is time consuming, humiliating and expensive. Another example is naming an individual as beneficiary on these financial accounts who has special needs and receiving governmental benefits. The government will reduce the public benefits by the amount of the inherited asset.
Myth 5: My estate isn’t big enough to worry about Probate and Estate Taxes.
Well, don’t be too sure. Because the probate limits of $50,000 and $75,000 are fairly low, a probate can easily be triggered. And remember, your estate is made up of everything you own – this includes property, retirement plans, investments, cash…etc. The probate process is expensive, costing approximately 7.4% of the estate value. As for the Federal Estate Tax, the exemption for 2013 is $5.2 million per person. So, if you are single, and die this year, your estate will not pay a federal estate tax if your estate is under $5.2 million. However, this exemption will likely be lower in the years ahead.
Please see one of our experienced estate planning attorneys to discuss how you can avoid these estate planning pitfalls for you and your family. To schedule your free consultation, contact our office today at 888.222.1328.
About Morris Hall:
At Morris Hall, we have focused our legal practice on estate planning for over 40 years. Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, power of attorneys, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects. We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, Tucson, Prescott, Flagstaff and Arrowhead. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.