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5 High-Priority Estate Planning Situations

While every adult should have an estate plan, the stakes are especially high if you find yourself in one or more of these circumstances.

Phoebe Moffatt  

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Too many people die without an estate plan, without even a simple Will. In the United States, where about 5.5 million people live with some form of dementia or Alzheimer’s, the majority of whom are over the age of 65[1], failure to plan can hold grave consequences.

If you suffer a loss of mental capacity before your body fails you, who will be in charge of making financial decisions on your behalf, and who will decide whether and how you will live in an assisted living facility or receive in-home nursing?

Without an estate plan, state law governs who in your family has priority in making medical and financial decisions on your behalf, in case of your incapacity, and at your death. So, one of the primary reasons to plan your estate is to create accurate legal documents to ensure that the individuals you pick will have priority over your medical and financial decisions when you are most vulnerable, and who will provide for the orderly distribution of your assets according to your wishes at your death.

Most people avoid estate planning, perhaps because they don’t want to face their own mortality or incur the legal fees to create a legally valid estate plan. As an attorney who specializes in this area[2], I understand that – but if you are like one of the five types of individuals described below, I suggest you need estate planning.

1. You Are in a Second+ Marriage

If you have children of a prior marriage and are lucky to fall in love again and remarry, you should consider estate planning.

Arizona is one of 11 states with community property laws. Without proper planning, at your death your new spouse and children will likely share in your assets and may disagree about which assets to which each is entitled. Or, at your incapacity, a fight may ensue over who has legal authority to make medical or financial decisions for you.

If your intentions are not spelled out clearly or legally through proper planning, your new spouse and your children may end up with the burden and expense to litigate about your intentions. Thus, creating an estate plan is really a gift from you to your loved ones.

Other legal issues that often arise in blended families include whether your ex-spouse is entitled to receive an asset pursuant to a post-nuptial agreement, or whether your new spouse acquires a community property interest in the family business that you owned prior to marriage, or, if your new spouse happens to be the one who is the first to die, whether his or her children will try to go after your assets.

This is a complex area. Consulting with a legal professional qualified in estate/trust law as well as community property is imperative to understand the strategy and options available to you. A legally valid estate plan can help avoid this uncertainty.

2. You Have a Minor Child or a Child with Special Needs

In Arizona, a minor child – i.e., under age 18 – is not allowed to own property. So, if you die unmarried (or if both married parents die together) and without an estate plan, your minor child could inherit your property at your death. However, the court would appoint a conservator to order how much of the inheritance can be used for the benefit of your minor child’s education and health or other needs.

Often, the expense of involving the court drains the child’s inheritance. After turning 18, or when the conservatorship terminates, your child would receive any remaining inheritance. Recalling what it is like to be 18, perhaps you would decide that delaying the age is a good idea.

If you are divorced, perhaps you would prefer that your ex-spouse (the child’s parent) not be in charge of the way the inheritance is distributed to your minor child after your death. While you may not be able to take away custodianship of your child from the surviving parent, your estate plan can specify other individuals to control how your minor child receives his or her inheritance after your death, and, if 18 years old seems too young, you can specify another age at which your child receives the balance.

If you die leaving a child with special needs, the inheritance the child receives may cause your child to lose his or her governmental benefits. In these cases, proper estate planning is truly a gift to your child and should operate to avoid these problems.

3. You Are Single and Worth over $5.49 Million, or Married and Worth over $10.98 Million

Only about 11,300 Americans who die this year will leave estates large enough to require filing an estate tax return, and only about 5,460 estates will owe estate tax.[3] About two-thirds of the taxpaying estates will be from the top 10% of income earners, with about one-fourth from the top 1%.

The estate tax exemption amount has increased from $675,000 in 1997 to $5.49 million for 2017. If, on your death, your net assets are above $5.49 million, your beneficiaries could pay an estate tax of 40% for every dollar over that amount. Because of the unlimited marital deduction, the surviving spouse usually does not pay any estate tax; however, at the survivor’s death, an estate tax would be owed if the exemption of the first spouse to die is wasted. This often happens when no election has been made to use the exemption of the first spouse to die.

In other words, for married people, it’s important to properly plan to use the available exemption of the first spouse to die, or the exemption can be lost at the death of the second spouse. It is especially important for individuals over the exemption limit to consult with qualified tax and legal professionals before undertaking any tax planning or estate planning strategies.

4. You Are Over Age 70

Let’s face it: We are all one day closer to death. Your deadline for proper estate planning is your death or incapacity. An accurate and legally binding estate plan is the way to take control over your personal and financial affairs.

5. You Have an Outdated Estate Plan

Because laws, family dynamics, states of residence, and the nature and value of assets change over time, your estate plan should be reviewed every three years. If you happen to die with an estate plan that was poorly created, or that does not match your wishes, or is noncompliant with current laws, your estate plan fails when you need it most - at your death or incapacity.

The point of having a solid estate plan is to clearly articulate your wishes when you are no longer able to communicate. For example, if the title to an asset, such as your residence, is not in the name of your existing trust, did the plan accomplish your wishes to avoid probate? If any document in your plan is noncompliant with state law governing distribution, or federal law regarding taxation, will the estate plan be enforced?

Without an estate plan, the law governs your legal affairs. At incapacity, if you want to control your personal and financial affairs, you have reason to create a binding estate plan which clearly articulates your wishes. At death, a properly created enforceable estate plan becomes your gift and legacy to those you leave behind.

Phoebe Moffatt is a Certified Estate and Trust Law Specialist (Arizona Board of Legal Specialization) and a Fellow of the American College of Estate & Trust Counsel.

[1] "2016 Alzheimer’s Disease Facts and Figures," Alzheimer's Association

[2] Phoebe Moffatt is a Certified Estate and Trust Law Specialist (Arizona Board of Legal Specialization)

[3] "The Tax Policy Center’s Briefing Book," Urban Institute & Brookings Institution