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
Many people have the audacity to die without an estate
plan, without even a Will. In the United States, about 5.5 million people
are living with some form of dementia or Alzheimer’s,
and the majority are over the age of 65 years old. If you happen to lose your
mind before your body fails you, who will be in charge of making financial
decisions on your behalf, and who will be in charge of whether you will live in
an assisted living facility or receive in-home nursing?
Without an estate plan, states law governs who has
priority in your family to be in charge of making medical and financial
decisions on your behalf at your incapacity and at your death. So, one of the
primary reasons to plan your estate is to create accurate legal documents to
ensure 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, because of the legal fees to create a
legally valid estate plan. As an attorney who specializes in this area, I
understand that, but if you are like one of the five types of individuals
described below, I’d suggest you are in need of estate planning.
1. Individuals 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. In
Arizona, one of eleven states with community property laws, at your death
without proper planning, your new spouse and children will likely share in your
assets and may disagree about which assets each is entitled; and, at your
incapacity, a fight may ensue over who has legal authority to make medical or
financial decisions for you. It’s really a gift from you to your loved ones to
create an estate plan.
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. 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
you owned prior to marriage, or whether your new spouse’s children will attempt
to go after assets belonging to you if your new spouse happens to be the one who
is the first to die.
This is a complex area. Consulting with a legal
professional qualified in estate/trust law as well as community property is
imperative to understand strategy and options available to you. A legally valid
estate plan can help avoid this uncertainty.
2. Individuals with a Minor Child or a Child with
A minor child is not allowed to own property - in
Arizona, a child under 18 years old. 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, a conservator would be appointed
by the court to order how much of the child’s 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 your child turns 18 years old or when the
conservatorship ultimately terminates, your child would receive any remaining
balance of his or her inheritance. Recalling what it is like to be 18 years old,
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 custodianship of your child away
from the child’s other surviving parent, you can establish an estate plan that
allows you to specify other individuals to control how your minor child receives
his or her inheritance after your death, and you can specify another age your
child receives the balance if 18 years old seems too young. For those who die
leaving a child with special needs, the inheritance from you may cause your
special needs 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
3. Single Individuals Worth over $11.58 million (or
$5.79 million after year 2025), and Married Couples Worth over $23.16 million (or
$11.58 million after year 2025)
In 2018, only about 4000 Americans were estimated to die
leaving estates large enough to require filing an estate tax return, and after
allowing for deductions and credits, only about 1,900 estates owed any estate
tax. That’s less than 0.1 percent of the 2.7 million people who were expected
to die that year.
The estate tax exemption amount has increased from
$675,000 in the year 1997 to $11,580,000 in year 2020. However, the 2020
exemption of $11,580,000 is scheduled to cut in half – only $5,790,000 -
starting January 1, 2026. What this means is that if, on your death, your assets
(minus liabilities) are above $11,580,000 (or over $5,790,000 in year 2026),
your non-spouse 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, but then 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 else 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. Individuals Over Age 72+
Let’s face it - we are all one day closer to death. Your
deadline for proper estate planning is your death or incapacity. The older we
get the closer we all get to death. The new SECURE Act which became effective on
January 1, 2020 creates many changes for those with retirement plans like 401ks,
traditional IRAs, and Roth IRAs.
One change is the retirement age for required mandatory
distributions is increased from 70 1/2 to 72 years old. In addition, most
beneficiaries who inherit a retirement account will no longer be permitted to
“stretch out” distributions over their lifetimes, but instead must deplete the
inherited retirement account within ten years of the plan participant’s death.
An accurate and legally binding estate plan is the best way to take control over
your personal and financial affairs.
5. Individuals with an Existing Estate Plan that May
Generally, I suggest your estate plan be reviewed every
three years. Why? Assets change over time. Family dynamics change over time.
Laws change over time. People move to different states. Goals and wishes change.
Life happens. You want to outlive your estate plan. 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? In short,
it’s just a good idea to have your estate plan reviewed at least every three
years. Because this is a complex and technical area, consulting a specialist in
estate and trust law can help ensure your estate plan works for you when you are
most vulnerable, and for your loved ones at your death.
In conclusion, 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 specialist in Estate and Trust
Law as certified by the State Bar of Arizona. She is a fellow of the American
College of Estate & Trust Counsel (ACTEC) and has AV Preeminent® Ranking from
Martindale Hubbell. She is listed in Chambers and Partners High Net Worth Guide
as one of the nine “Leading Individuals” among Arizona’s private wealth law
attorneys. Ms. Moffatt is also included in the ranking of Best Lawyers in
America® for her work in Trusts and Estates, and in Super Lawyers®. Ms. Moffatt
graduated with Phi Kappa Phi Honors from The University of Memphis School of
Law, and her undergraduate degree from ASU Honors College. Throughout her
career, she has participated in many legal organizations, including the State
Bar Estate & Trust Advisory Commission, the Arizona Women Lawyers Association.
She can be reached
at firstname.lastname@example.org or at 480-425-2608.
Alzheimer’s Disease Facts and Figures," Alzheimer's Association
 Urban Institute & Brookings Institution, "The Tax Policy Center's
Briefing Book: A Citizen's Guide to the Fascinating (Though Often
Complex) Elements of the Federal Tax System)"