I'm Not a Millionaire, Why Do I Need an Estate Plan?
Generally, when someone hears the term “estate planning,” they immediately think of a will and an elderly billionaire giving his fortune to his butler and poodles. However, there is much more to an estate plan than just a will. While it is important to ensure that your loved ones receive what you wish them to have, it is also important to make sure who has the legal authority to carry out you wishes before and after your death.
A comprehensive estate plan allows you to delegate your personal rights to others while you are alive and after you have passed. It ensures that your assets are managed and distributed according to your wishes along with protections for your assets and corresponding beneficiaries. An estate plan can consist of a Living Trust, Testamentary Trust, Irrevocable Trust, Pour-Over Will, Last Will and Testament, Living Will, Funeral Instructions, Burial Instructions, Financial and Medical Powers of Attorney, Non-Probate Transfers, Payable on Death Designations, Deeds, and other governing instruments.
When you do not have a plan in place, Arizona statutes will set forth the guidelines for administering your estate and quite often your wishes will NOT coincide with the law. Below, I discuss some common familial situations and evaluate the consequences of not having an estate plan in place.
Do I Have Children With More Than One Person?
If you do, this WILL cause issues. For example: husband marries wife #1 and has two kids. Then husband divorces wife #1 and marries wife #2. Husband and wife #2 have one child and live a long and happy life of 30 years. Husband and his children from wife #1 have been estranged for 20 years. Husband dies without a will.
The law states that Husband’s children – including the estranged ones – are to receive half of Husband’s separate property and all of Husband’s community property. Depending on how property was titled between husband and wife #2, it is possible that the estranged children from wife #1 now have an interest in: the house wife #2 is living in, the husband’s car, half of his personal belongings, and half of his personal bank accounts, etc. I have seen estranged children force the sale of the surviving spouse’s home. That is why it is important to have a will (or trust) in place.
Further, what if your children from a previous relationship are underage? If they are, who is going to manage the money they receive from you? Your ex-spouse? Do you trust him or her to properly manage the money for your child? Um, no!!!
Will My Child Be Ready To Manage His Or Her Inheritance When I Die?
When you pass away, hopefully your children are grandparents and are well-established, responsible adults. But, what if your child is a minor? Then your child will likely need a conservatorship to control his or her money until your child turns 18. Conservatorships can be expensive because they are monitored by the Court. The Court charges filing fees, investigative fees and requires annual accountings. The conservator will probably need to hire an attorney to ensure that the conservator is doing things properly. All of these costs will be paid for out of your child’s inheritance. Probably not the reason you bought an insurance policy…
And, when your child turn 18 years old – BAM!!! The money is your child’s and he or she can use it with all of his or her 18-year-old wisdom. Do you think your child will be able to handle $10,000 responsibly? How about $50,000 or $100,000? Probably not. Moreover, there is nothing that can be done – it is your child’s. Time for some gold-teeth, diamond-encrusted selfie sticks, and a spring break to Mazatlán with his or her friends. Oh, and it would be best for your child to take a year off from college – you know, so your child can waste more money.
Also, what if your child is 30 years old when you die, but he or she has an addiction such as alcohol, drugs or gambling? He or she will get the money outright with no supervision. This can be a death sentence... (No jokes here.)
Finally, what if your child has many outstanding debts? If your child receives their inheritance outright, his or her creditors can seize your child’s inheritance. Probably not what you intended to be done with the money. All of the aforementioned scenarios can be avoided with a trust.
Are You Not Married to Your Partner?
If you are not, your fiancé, life partner, boyfriend or girlfriend is not entitled to your property. Under Arizona Law, your children are the heirs of your estate. If you do not have any children, then your assets go to your parents and then to your siblings. This can be very unfortunate for someone whom you dearly loved and can put them in financial ruin.
Many times individuals raise step-children as if he or she was their own child. If this child was not adopted by you, that child is not entitled to receive anything from your estate after your death. Only your offspring and adopted children will receive a distribution.
Who Do I Want To Care For My Children If I Die?
If you die, generally your children will be taken care of by the surviving parent. But, what if you and your spouse die in the same accident? Or, what if the surviving spouse is incarcerated? What if your parents are too old to care for your children? With an estate plan, you will designate who you wish to care for you children in the event you pass. This can prevent a nasty court battle over who is going to serve as the children’s guardian. Also, it can prevent a family member taking custody of your children who has no business raising them.
Who Do I Want To Receive My Belongings If I Don’t Have Children?
Without an estate plan, your belongings will be transferred to your parents. If your parents are not alive, your belongings will be distributed to your siblings. If you planned on giving a close friend or charity some of your property, that is not what the law will dictate.
Can Someone Pay My Bills If I Am In The Hospital?
If you do not have anyone else named on your financial accounts, then typically no. You need a power of attorney to delegate powers to your “agent” who can then act on your behalf. Some examples of powers given to an agent are:
Ability to sell your personal property such as your car or jewelry;
Ability to sell and lease real property such as your home;
Deal with your creditors;
Obtain a loan for you; and
Almost anything else you desire.
A power of attorney will allow you to not have to worry about your “financial life” while you have more important things to deal with. You can either create a limited power of attorney that will allow your agent to temporarily act on your behalf or you can create a “springing” durable power of attorney which will allow your agent to act on your behalf only if you become incapacitated. If you do not have one in place, you could possibly lose the things you have worked very hard to obtain during your life.
Who Will Make Medical Decisions For Me If I Cannot Make Them For Myself?
Who do you trust to make medical decisions for you when you cannot? A health care power of attorney will allow you to appoint someone to make medical decisions on your behalf when you cannot. It is always best to have wishes regarding your care in writing, but sometimes unexpected issues arise. That is when you need someone to make those decisions for you based on his or her knowledge of you and your wishes.
Do I Want To Be Kept Alive On Feeding Tubes?
If the answer is no, does your primary physician know this? Does your family know this? A living will states your wishes regarding your end of life care. You can choose to: receive only “comfort care”; or make specific limitations on your treatment; or prolong your life to the greatest extent possible. The important thing is to have your wishes set in place, so your wishes are followed. You do not want to put a loved one in the position of having to make the decision for you. Most people do not want to be kept alive in a vegetative state; however, most relatives do not want to be the person to “pull the plug.” Put your wishes in writing so one of your loved ones is not filled with guilt by making the decision for you.
What Do I Want Done With My Remains After I Have Passed?
An estate plan should also include instructions regarding your remains. Do you want to be cremated and have your ashes spread in a certain place? Do you want to be buried near another loved one who has already passed? Do you want to donate organs to help another? Do you want to donate your body to science? Many times after someone has passed, the surviving family members disagree about what to do with your body. Put it in writing, so you can prevent a fight between your family members and avoid contentious litigation.
Remember, a good estate plan can be as simple as a will, Financial Power of Attorney, and a Health Care Power of Attorney. You need to be proactive to prevent unfortunate circumstances. We never know what life is going to give us, so it is important to control the things that we can!
The questions listed above are not exhaustive; there are many other scenarios that can be addressed with an estate plan. Further, this is not legal advice and should not be construed as such. It is informational only. If you have any questions, feel free to call me.