Life is full of choices, right? The same is true when it comes to estate planning. The two most popular options traditionally chosen are either the Last Will & Testament (“Will”) or a Revocable Living Trust (“Trust”). There are many factors which must be taken into consideration when deciding which option is the best for you and your family.
One of the main factors that must be considered when formulating an estate plan is the size of your estate. If the estate value is over the state’s statutory limit, a probate proceeding may occur after you pass away. An estate consists of your real property, personal possessions, cash, brokerage accounts, retirement and life insurance. Each state has its own threshold which triggers a probate. In Arizona, if you meet one of the following two triggers, a probate can occur – 1) if your property’s equity is over $100,000; or if your personal possessions, cash, brokerage accounts, retirement and life insurance are over $75,000.
Another important factor is determining what is important to you as it relates to your beneficiaries. What if your kids aren’t in the best of marriages? Do you want the inheritance you leave your beneficiaries to have asset protection against creditors or divorce? Long term care expenses are on the rise – would you like to prevent the government from making your beneficiaries spend-down the inheritance you leave them? These are just some of the factors that must be considered when formulating the best estate plan.
There are many differences between a Will and a Trust. For example, unlike a Trust, an estate plan consisting of a Will can ensure possibly two probates – a living probate and a death probate. The living probate is often forgotten when one is considering estate planning. The Will is considered a death instrument, that is, it springs up only when you die. However, if you become incapacitated, the Will will not handle incapacitation. All too often, a living probate would have to occur in order to legally put someone in place to make your financial and healthcare decisions. This court process is called a guardianship and conservatorship. The death probate occurs when you pass away with assets in your name exceeding the probate threshold. A court proceeding would have to occur to legally transfer your assets after you pass away.
Can a living probate be avoided? Yes, a living probate (guardianship) can be avoided if you have properly drafted healthcare documents. Every individual over 18 years of age needs the following documents –
- Healthcare Power of Attorney
- Mental Healthcare Power of Attorney
- Living Will
- Authorization to Disclose Information (HIPAA)
Can a death probate be avoided? Yes, if your estate exceeds the probate threshold, an option to consider would be a Trust. A Trust allows for your assets to be titled (funded) in the name of your trust allowing your estate to bypass a probate proceeding. With a properly funded Trust, there are no assets titled in your name when you pass away. It is important to continue to title your assets to the Trust after the creation of the Trust.
Another difference between a Will and a Trust is there is no asset protection afforded to your beneficiaries with a Will. A beneficiary under a Will receives an outright distribution. For example, if Sally receives $50,000 under her mother’s Will, Sally must take her inheritance and combine it with her own personal funds. Unfortunately, this distribution is subject to all of Sally’s potential creditors. If Sally is in the middle of a divorce or a lawsuit ensues, this distribution can be subject to creditors. However, with a properly drafted Trust, Sally’s distribution would be protected from divorce, creditors and Medicaid spend-down.
In order to determine which estate planning option should be chosen for you and your family, it’s important to see an experienced estate planning attorney to discuss the many factors that must go into this decision because estate planning is definitely not a one size fits all plan.
Why Choose Morris Hall:
You have a number of options when it comes to estate planning, so why pick Morris Hall? First off, estate planning and asset protection are a very complicated endeavor and you should only trust someone who focuses exclusively on those matters. Also, MH is a proud member of The American Academy of Estate Planning Attorneys (AAEPA) which provides us additional support, advanced training, tools and information that is not available to others – which means that we can better protect your assets and your loved ones. We are one of only two firms in Arizona that belong to the AAEPA and are the only firm in that has been granted membership. If you have assets and loved ones that you want to protect, you are in good hands with MH. 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.