Your Estate Plan: Why & Where To Start

By Steven C. Wagner, JD, CPA, Special to Community Foundation for Southern Arizona

Planning for future incapacity or death can be a daunting task, one that is overwhelming enough that some people put it off until it is too late. However, taking the time now to make sure that your wishes are documented will be very helpful to your loved ones in the future.

There is no simple answer, so I would recommend that a person discuss that person’s estate plan with an estate planning attorney who is licensed in the state where the person resides. In addition, it is important to keep advisors, including a person’s CPA, estate attorney, and financial advisor, up to date on any changes in life and so everyone is on board with the overall plan. The advisors will also be able to bring in other resources when needed. For example, when I have had clients interested in charitable giving, the Philanthropic Advisors at the Community Foundation for Southern Arizona have been a valued resource.

If no plan is in place, then upon death, state law will control the disposition of assets. Generally, the assets would go to a surviving spouse, then children, then parents, and so on.

A Will can be used to appoint the administrator of an estate and to devise the decedent’s assets upon death. Under Arizona law, whether there is no plan in place or there is a Will, probate may be required if the decedent’s personal property is over $75,000 or if the equity in real property is over $100,000. Probate can be a time consuming and public process, where the court oversees the administration of the estate.

One way to avoid probate is to use an estate plan utilizing a trust. A trust would handle the assets that are owned or transferred to the trust either upon the creator’s incapacity or death. If a trust-based plan is used, then it is important to review how assets are titled or designated. For instance, if a person sets up a trust, but maintains ownership in the person’s name of real property with equity over $100,000, then upon the person’s death, a probate would be required unless a beneficiary deed had been recorded transferring the property into the trust or to someone else upon death.

There are other reasons to use an estate plan involving a trust other than to avoid probate. For example, a trust can be utilized when a beneficiary is a minor, a beneficiary has special needs or for some other reason, the decedent does not want a beneficiary to receive the interest outright. If this is the case, then a trust can be used to hold the funds that are vested in the beneficiary, but a third party, the trustee, has control over the trust assets for the benefit of the beneficiary.

It is important to note certain assets can have beneficiaries designated, like retirement accounts and life insurance. If a beneficiary designation is used, then the beneficiary designation would control the disposition of the asset, even if the beneficiary designation goes against what the Will or trust says.

Further, certain assets are treated differently at death for taxes. For instance, under current law, if you own appreciated stock in a brokerage account, upon death, the tax basis will be adjusted to the date of death value. This means your beneficiaries would not have to pay any income tax on pre-death appreciation. However, if the asset is a taxable retirement account, such as a traditional IRA, the beneficiaries will be taxed on the account when the assets are distributed, in the same manner as you would have been taxed on distributions from the account.

In addition to a Will and trust, there are other estate documents that should be considered. A financial power of attorney would appoint an agent to handle assets that are in a person’s name, while the person is incapacitated. One of the most common assets that would normally fall under this category would be a retirement account. While a medical power of attorney appoints an agent to make medical decisions for a person when they are incapacitated, a living will provides medical care instructions to be followed by the medical power of attorney.

Finally, once created, a plan is not set in stone. The plan should be revisited every five years or upon a life change (death, marriage, birth, divorce, etc.) to see if any updates are needed. Not only should the estate documents be reviewed, but also the beneficiary designations and how assets are titled.

About The Author

Steven C. Wagner is a Partner at the legal services firm of Fletcher Struse Fickbohm & Wagner PLC. His areas of expertise are in estate planning, trust administration, and estate, trust, gift, and generation-skipping transfer taxation. Steve became a certified public accountant in December 2002. Then Steve went to Rutgers School of Law in Camden, New Jersey, and became a member of the state bar of Arizona in December 2005. Steve is a member of the Southern Arizona Estate Planning Council and the Steven W. Phillips Tucson Tax Study Group.

In addition, Steve is the Chair of the Professional Advisor Network for the Community Foundation for Southern Arizona. In his free time, Steve performs with Cirque Roots, a local circus company, performing with fire and partner acrobats.