Understanding Wills and Revocable Trusts

I. What’s Included in Your Estate:
Basically all of your assets you own at your death. This includes bank accounts, money market and brokerage accounts, certificates of deposit, your house and any other real property, cars (if you do not lease them) and recreational vehicles, IRAs, retirement plans and life insurance death benefits (unless the policy is owned by someone other than you or your spouse, or it is in an Irrevocable Insurance Trust.).

II. Why should you have a Will?

  • Ensure that your assets are distributed to whomever you would like to receive them at your death; otherwise, the state of Arizona will distribute your assets according to Arizona law.
  • Name the person or family you would like to raise your minor children.
  • Appoint the person you would like to serve as the Personal Representative to administer your estate.

What doesn’t the Will do?

  • It does not prevent probate which is a lengthy and expensive court process.
  • It is not a private procedure. All documents, records and hearings are a matter of public record.
  • Most Wills, unless it contains a testamentary trust, does not provide for the assets to be distributed out over time. This means that your children will receive their distribution at the age of majority (18).
  • It does not provide asset protection to the beneficiaries.

III. Why should you have a Revocable Trust?

  • Minimize or eliminate estate taxes.
  • Asset protection for the ultimate beneficiaries.
  • Is a relatively seamless transfer of assets
  • Avoids Probate:

1. Only assets properly titled in the name of your trust will avoid probate at your death. If you forget to title an asset in the trust name, there is a probate first and then it is transferred to the trust and is passed out in accordance with the trust terms. If you own real property in other states that is not titled in your trust, there must be a separate probate in each state.

2. Generally, you should not name your revocable trust as the beneficiary of your IRA or any retirement account, since you will lose the ability for each non-spouse beneficiary to use their own life expectancy for distributions and all income tax is due within five years of the death of the trustor. However, specific provisions may be included in your trust to allow for individuals to inherit an IRA via your trust and allow for it to be “stretched out”. This is helpful for families with minor beneficiaries.

  • Control Asset Distribution to Children/Grandchildren: A trust allows you to be creative regarding the terms of the distribution of your assets. This means you can be as strict or lenient as you want to be with the distributions. Distributions can occur over time, or they can be 100% outright immediately upon your death. You may also make the distributions contingent on a child maintaining a certain grade point average in school or distributions based on certain milestones in the beneficiary’s life.While a beneficiary’s share is held in trust, it is always creditor protected. This means that a creditor cannot make a claim to the beneficiary’s future distributions. A trust must have a spendthrift provision in it to provide this type of protection from creditors.
  • Allow a step-up in cost basis: Your cost basis is what you paid for the asset. If your heirs (spouse, children) inherit an asset rather than receive it as a gift during your lifetime, they will get a “step-up” in cost basis to the fair market value of the asset as of the date of death. This means that heirs can sell the property after your death for its fair market value and pay no capital gains tax. This is potentially a large income tax savings.Property held in joint tenancy may avoid probate, but the surviving owner loses the step-up in basis for his or her half of the asset. Property owned by a husband and wife as community property with right of survivorship will receive a step-up in cost basis for the entire asset.

IV. Estate Tax:
Is owed only if the value of your assets exceeds the applicable federal estate tax exemption in the year you die. If it is a possibility that your assets are over the estate tax exemption, an appraisal will be done for your assets on the date of death to establish if the total asset value is over the estate tax exemption. Exception: exactly 6 months later, if the total asset values are less, you can use the lower value for estate tax purposes (also known as the alternate valuation date).

  • Federal Estate Tax Exemption:
    This the amount you can pass on to non-spouse beneficiaries, estate tax free. In 2015, the exemption is $5,430,000, but this amount changes frequently and may not remain this high.
  • Unlimited Marital Deduction:
    A married couple does not pay any estate tax until the second spouse’s death, no matter how much the assets are worth (assuming the surviving spouse receives all of the deceased person’s community property and separate property). Only one estate tax exemption gets used in the year of the surviving spouse’s death, unless you create a trust that splits into sub-trusts upon the first spouse’s death, utilizing both estate tax exemptions.

V. A-B Trust:
The “A” trust is the survivor’s trust and the “B” Trust is the decedent’s trust. This trust is a mandatory split trust. At the first person’s death, the “A” trust receives the surviving spouse’s one-half of the community property and all of his or her separate property. The “B” trust (aka, Decedent’s Trust) is funded with the deceased spouse’s one-half of the community property and all of his or her separate property. This trust is used for several reasons:

  1. There are children from previous relationships
  2. If there are creditor issues or potential creditor issues
  3. Both exemptions are needed due to the size of a couple’s estate
  4. Separate property of one or both spouses

VI. A-Disclaimer Trust:
This is used when a couple does not know if they will need both exemptions and they trust the other to have full power to change the beneficiaries of the trust.

At the death of the first spouse, if the surviving spouse thinks there might be estate tax at her death (assuming the wife is the surviving spouse), she can disclaim a part of the estate to the Decedent’s Trust, which she can receive income and principal, if needed, but it will go to the children or the ultimate beneficiaries named in the trust at the second spouse’s death and get the benefit of using up all or part of the two estate tax exemptions. This trust provides maximum flexibility to the Trustors, since you don’t know the answer to three very important questions: 1. What will be your date of death? 2. What will the federal estate tax exemption be on that day? 3. How much will your estate be worth at your death?

A disclaimer is when the spouse steps aside from inheriting all or a portion of the deceased Trustor’s estate. It must be done within nine (9) months of the date of death of the first spouse. It’s as though the surviving spouse died first and never inherited the disclaimed piece. The next named beneficiaries in line step up to first place for the outright distribution, but because the surviving spouse might live a long time and need to live off of those assets, the disclaimed funds are placed in the Decedent’s Trust so the survivor may access the money, if needed, but they are generally used after the Survivor’s Trust has been exhausted. Because the Decedent’s Trust is an irrevocable trust, those assets become creditor protected and are not a part of the survivor’s estate, nor accessible by creditors of the survivor.

VII. Single Trustor Trust:
A single person can pass on one exemption worth of assets to heirs. Amounts in the estate exceeding the federal estate tax exemption are subject to estate tax within nine months from the date of death.

VIII. Health Care Power of Attorney:
A health care power of attorney is a document that designates an agent to make health care decisions on your behalf, in the event you are incapacitated and unable to make decisions for yourself. This could be a result of an illness or possibly an accident and the doctors or hospital needs someone to consent to a treatment or procedure. When time is of the essence, you don’t want family members disputing over who has authority and what should be done.

A health care power of attorney can limit your agent’s powers, or can provide full authority to make decisions on your behalf, as well as disclose medical records.

This can be particularly important if you are unmarried, but have a significant other that you would want to make medical decisions for you, rather than your immediate family members.

IX. Living Will:
A living will sets forth your desire to receive or refuse end of life treatment which may only prolong the inevitable, in the case of a terminal illness. Most people would choose to not be left to live on a feeding tube in a hospital bed for months or years on end with no hope of recovery due to a terminal illness, coma or persistent vegetative state. Most individuals will choose quality of life over quantity of life. A living will sets forth your personal desires, in the event you are ever incapacitated and unable to communicate your personal wishes.

X. Financial Power of Attorney:
A Financial Power of Attorney will appoint an individual or company to act on your behalf to conduct everyday business, manage bank and brokerage accounts, individual retirement accounts and any additional authority granted to the Agent on the Principal’s behalf. This can be used in the event of an accident including physical or mental incapacity, but can also be granted to an Agent with full power to act at any time, regardless of the capacity or incapacity of the principal.

The above information is provided for general information only. If you need specific legal advice, please consult an attorney.


Most people do not know what a legal document preparer is, not to mention how or why you
would hire one. There are myriad reasons why you would want to hire a legal document preparer, but
they are most often utilized when you do not need specific advice and you generally know what
documents you want or need prepared. A legal document preparer will provide you with general
information only. They can prepare documents relating to many areas of law, while offering services at a
fraction of the price of an attorney.

Because in most states, there are many paralegals who work independently of an attorney, the
Arizona Supreme Court chose to take a proactive approach and to license individuals with both education
and experience in the legal field to help the public with legal documents. This allows the state to govern
the licensing of each person and set a criteria based on each individuals education as well as his or her
work experience in a law firm. Arizona saw the need for the general public to receive legal assistance
without having to incur the expense of an attorney, so on July 1, 2003, the Arizona Supreme Court
created the Certified Legal Document Preparer program in its effort to accommodate the public need for
affordable legal assistance. Once a person is qualified to sit for the exam, and upon its successful
completion, the licensed legal document preparer is able to assist the general public with the preparation
of legal documents. Each year, the legal document preparer is required to complete ten hours of
continuing education.

The Arizona Supreme Court website provides a complete list of all currently licensed legal
document preparers, as well as links to all of the rules and regulations governing the licensees.

Estate Planning Isn’t Just for the “Old” and “Rich”

Estate planning is often times considered something that wealthy older people should do. The reality is that every adult can benefit from estate planning, whether it’s by creating a simple will, revocable trust, or maybe just having powers of attorney documents in place.

A simple will is great for someone with a small estate and a simple need to direct how their estate will be handled at death. Included in the will are two very important provisions: (1) Who will be appointed as the guardian for any minor children you have at the time of your death. If a guardian is not appointed, the courts will choose the person who will raise your children – this may or may not be the person you would have chosen; and (2) Who will inherit your assets including your home, car, bank and brokerage accounts. If no Will is in place, the state of Arizona will distribute your assets to your spouse and/or children, if any; otherwise, to your heirs chosen by the courts. While this is fine for some families, many would not choose to have certain family members receive their assets. If there is no spouse and there are no children of the deceased person, the assets of the decedent will be distributed to living parents; otherwise, to living siblings. Additional complications can arise and can be particularly troublesome for those individuals who are not married, but have a significant other and share assets such as a home together. Unfortunately, significant others do not receive any recognition by the courts and ultimately, no benefit from the deceased partner, unless he or she is named as a beneficiary in a will or trust.

While a will is a great tool for naming a guardian for children and ensuring that your assets are passed on to the loved ones you have chosen, it does not prevent the assets from going through probate. Probate is the process in which the will of the decedent is filed with the court and it is determined by the court to be either valid or invalid. Depending on the size of the estate and if anyone contests the validity of the will, this process can take anywhere from six months to a year or two. While the estate is being probated, all assets are frozen and unavailable to the family or those who may ultimately receive the estate. This is not only a long process, but can be very expensive and frustrating for the beneficiaries.

Luckily, there is a way to avoid probate! By creating a revocable trust, this is considered to be a separate entity from the trustor (person creating and funding the trust). The trust will own the majority of assets owned by the trustor, generally with the exception of retirement assets and life insurance. A trust can continue on long after your death, allowing assets to be distributed over time, if a beneficiary is young, and generally in a seamless manner without Court supervision. While a beneficiary’s share is held in trust, it is protected from creditors and will not be made a part of a divorce or judgment.

Estates with no will or trust will be distributed to any beneficiary over the age of eighteen. This can cause a myriad of problems for younger beneficiaries coming into large sums of money. It is usually a better choice to provide for a younger beneficiary’s needs and distribute to the beneficiary in small increments of money over a set period of time. During this time, the beneficiary will mature and learn how to handle the money responsibly, or at a minimum, learn from his or her mistakes.
In addition to a simple will or revocable trust, there are two power of attorney (POA) documents that every adult should have in place. The first document is a health care power of attorney which appoints an individual to make health care decisions for you, if you are unable to make choices for yourself. For example, if you are in an accident or in surgery and the doctor needs consent for a particular treatment or procedure, the agent appointed will make such decisions on your behalf.

A Living Will is sometimes a part of the health care POA, but can also be a separate document which includes your wishes for treatment in the event of a terminal illness, coma or persistent vegetative state with no hope for recovery. If you do not have a living will in place, family members will make the choices for you. Initially, this might sound perfectly fine, but what happens when the family members disagree? Few can forget the Terri Schiavo case in Florida many years ago when she was left on a feeding tube for fifteen years while her husband battled in court against Terri’s parents who wanted her to remain on life support. This simple one page document would have prevented Terri Schiavo from remaining in a hospital bed for fifteen years in a persistent vegetative state, while her family battled her fate out in the Florida courts.

The second POA is a financial power of attorney. This document will appoint an individual or company to act on your behalf to conduct everyday business, manage assets not owned by a trust (or all assets if there is no trust) such as bank and brokerage accounts, individual retirement accounts and any additional authority granted to the Agent on the Principal’s behalf. This can be used in the event of an accident including physical or mental incapacity, but can also be granted to an Agent with full power to act at any time, regardless of the capacity or incapacity of the principal.

While estate planning may at a glance seem confusing or overwhelming, ignoring the inevitable will only cause more confusion and complications for your family and loved ones. At a minimum, you should know and understand what will happen to your estate and make a conscious decision based on you and your loved ones individual needs.

The above information is provided by Loray Walker of Paralegal Consultants, Inc. Loray Walker is a nationally Certified Paralegal and an Arizona Certified Legal Document Preparer. This information is being provided for general information and should not be used or interpreted as legal advice. If you need specific legal advice, please contact an attorney.

Gifting Giving – What are the Tax Consequences?

Most people have heard of “gifting” at one time or another. While there are benefits to gifting, there may also be negative tax consequences too. Currently, in 2014, every person can gift $14,000 to as many people as they choose, without any tax consequences to the Donor or burden of filing a 709 Gift Tax return. This is a great way for a person who has a taxable estate to try to reduce the taxes due at their death. Given the fact that the federal estate tax exemption is currently $5,340,000 for each person, a couple would have to have an estate valued at over $10,680,000 before federal taxes would be due at their death. Consequently, most people do not “have to” gift – they choose to.

One of the most common transfers is when an elderly parent decides to “simplify” his assets and starts gifting bank accounts or real property to his children. The parent can record a deed to transfer the property to a child and check that off of the list of assets to distribute at their death, right? So what happens when the child goes to sell the property? Here is an example of what can happen.

Dad quit claims a property he bought back in 1981 for $75,000 to his daughter in 2012. At the time of the gift, the property was worth $500,000. A gift tax return would have to be filed disclosing the gift and possible gift taxes due. This tax burden, as well as the filing of the 709 Gift Tax return becomes the Donor’s responsibility, not the Donee (receiver of the gift).

The daughter decides to keep the property and rent it out, creating some passive income for herself. Now fast forward to 2014. The real estate market has skyrocketed and it seems like a great time to sell. Daughter lists the property and receives a sale price of $600,000. But what is the cost basis used to determine the amount of tax due for capital gains? Most people don’t think about this issue, and sometimes it doesn’t matter – but often times it does. The cost basis will be $75,000, (the father’s original purchase price) which means there will be long-term capital gains paid on $525,000. Assuming a rate of 15% would mean taxes of approximately $86,250.

If Dad would have waited to gift the daughter his land through a Will or Living Trust, the daughter would have received the property with a cost basis of whatever the property was worth on the father’s date of death. Let’s assume the Dad was elderly and died within a couple of years. The daughter could have sold the property immediately and would likely have paid little or no capital gains on the gift.

Clearly, a gift can be a great way to pass assets on to loved ones. Understanding the consequences and choosing gifts wisely can save the recipients from a large and unexpected tax bill.

Who Needs a Living Trust?

How do you know if you need a living trust or maybe just a simple will? While the answer to this question can be somewhat arbitrary and depends on several issues, there are some guidelines that can be used to help determine what is best for your situation.

In Arizona, anyone with less than seventy-five thousand dollars in personal property, less any encumbrances may consider having a simple will. The state of Arizona allows for a beneficiary to use an Affidavit For Collection of Personal Property to collect the property without the necessity of probate. While this can be a simple process, it does come with some complications. For example, if there are several beneficiaries with a right to the personal property, all but one beneficiary will have to waive their right to the assets, in order to allow one beneficiary to collect the assets. If everyone does not agree, this may be more challenging than you might expect.  Further complications may arise when it comes to distributing the assets to those who may have waived their right to any claim. Additionally, what if a beneficiary is a minor? Who will have authority over the funds until the beneficiary is eighteen years of age?

Additionally, Arizona allows for an Affidavit for Transfer of Title to Real Property for real property that has a net value of less than one hundred thousand dollars. Again, there can be similar complications when collecting real property as is when collecting personal property, as well as a waiting period of six months to collect the asset.  This type of transfer should be used as a way of collecting real property that was inadvertently not planned for in a person’s estate planning documents, rather than using it as part of the plan for disposition of assets at a person’s death.

An Arizona living trust (aka revocable trust) can be a great vehicle to pass assets on to family members, while maintaining a certain amount of control over the distributions from the trust. While this may seem too complicated or expensive for a small estate, it can simplify the transfer for those with multiple beneficiaries and minor beneficiaries, avoiding the need and expense of court appointed conservators for minors.


When I prepare a client’s estate planning documents, whether it’s a simple Will or a revocable trust, I am frequently asked how often the documents should be reviewed.  While the answer is subjective, I believe that there are some guidelines that may be helpful to you when asking this question.

If any one or more of the following applies to you since your estate planning documents were prepared, you may want to review them for potential changes:

  • MARRIAGE OR DIVORCE.  If you have recently gotten married, this is a time to change your documents to include your spouse, or to prepare documents as a married couple.  If you have a single person trust, you can continue to use this trust for any assets that you wish to maintain as separate property.  If you have recently gotten divorced, you should change all documents to remove your ex-spouse as a beneficiary of your estate and to re-title assets in the name of your new trust.
  • BIRTH OR DEATH OF A CHILD.  The birth of a child is a time to include the newborn and to make long-term plans for the distribution of your estate as the child grows.  The death of a child may or may not be a cause to make changes to your documents, but it is certainly a time to review them to ensure that at least one alternate beneficiary has been named.
  • LONG-TERM RELATIONSHIP.  If you are now in a long-term relationship, but not married and want to provide for your significant other, then your documents will need to be changed. This may include the distribution of your estate as well as who is named as power of attorney for healthcare and financial decisions.  Also, the purchase of a home with a significant other is an important time to review the title and ensure who will inherit the property upon your death.
  • INHERITANCE OR SUBSTANTIAL INCREASE IN NET WORTH.  If you have inherited money or assets such as real property or stock, your documents should always be reviewed, as they were prepared according to your net worth at the time the documents were signed.  While this does not mean that they will “have to” be revised, it does mean that they “may” need to be revised.  How title is taken is very important, as all inheritance is separate property, until or unless it is co-mingled with community property. Most trusts allow for a married couple to hold separate property within that trust, but again, it depends on how title is taken when the asset is transferred.  There may also be a need for real property to be in a new, separate entity such as an LLC.  This would depend on the value and type of property you have, as well as if it is leased to an outside party or used as a primary residence.
  • IT’S BEEN AT LEAST 3 YEARS SINCE YOU LOOKED AT YOUR DOCUMENTS.  Even if you have not had any major changes in your life since you prepared your estate planning documents, you should always confirm that the documents do what you want them to do.   Since times change and memories fade, it’s always important to make sure that what you “think” you have in place “IS” in fact, what you have in place.

If you have estate planning in place, you have prepared your plan for several reasons. One of which is to ensure that your loved ones will be taken care of after your passing.  It is also to simplify the distribution and avoid the expense and process of probate.  In light of the above, you might want to do yourself and your loved ones a favor and take some time to review your documents.