Introduction
Estate planning takes on an entirely different meaning when you have a family. You’re not just planning for yourself anymore — you have a responsibility to ensure your children are properly provided for and cared for in any contingency. That includes addressing what happens if you become incapacitated, what happens when you pass away, who will physically care for your children, and how that caregiver will financially support your children.
What is a Family Estate?
When people use the term “family estate,” they’re generally referring to community property shared with a spouse. Under Arizona’s community property laws, property that’s accumulated from the date of marriage until the date of divorce or legal separation is shared equally between spouses. Each spouse has a 50% claim to the joint assets, and sole claim to separate property acquired before marriage or by gift, descent, or device during the marriage.
There are two ways to handle community property in a family estate. The easiest is to position your assets to transfer to your surviving spouse outside of probate by listing them as a joint owner or beneficiary. When handled properly, non-probate assets can pass to your spouse immediately upon your death without waiting to probate your will. Not only does this save time and money, it ensures your spouse has continued means to provide for your family in your absence.
Positioning assets to transfer outside of probate isn’t always an option, however. In these situations, it’s important to cover probatable assets in your last will and testament. It may take a little longer to probate the assets, but it’s far better than leaving your estate subject to state intestacy laws in the absence of a will.
Core Documents in a Family Estate Plan
While family estate planning certainly carries unique considerations and contingencies to plan for, the core documents are the same as you’d find in an individual estate plan. You can handle some of these on your own, but most of them will require the assistance of an experienced estate planning attorney.
When you find an attorney you trust and see yourself working with, the attorney will help you prepare the following important documents to form the foundation of your estate plan:
- Durable power of attorney – use this document to authorize an agent to act on your behalf if you become mentally or physically incapacitated. Most married couples choose their spouse as their agent, but you’re free to choose anyone you trust. If you do choose your spouse, you’d be wise to nominate a backup agent in case your spouse also becomes incapacitated or passes away.
- Living will – also referred to as an advance healthcare directive, your living will lays out your healthcare preferences on important subjects like resuscitation, palliative care, life support, and organ donation. Your living will can also designate a healthcare proxy to make important decisions on your behalf if you become incapacitated.
- Last will and testament – anytime minor children are involved, you’ll need to determine who will physically care for them should you and your spouse become incapacitated or pass away before they reach adulthood. Name a primary guardian in your will, and consider adding a backup guardian in case your first choice declines or passes away. Your will should also nominate an executor to manage your estate through the probate process. Finally, your will should name beneficiaries for any assets that are subject to probate. Note that if you intend to gift assets to minor children, you’ll need to form a trust (minor children cannot receive property).
- Letter of intent – while you can use a letter of intent to address any topic, in this case we’re talking about a letter of intent for your funeral and burial plans. It’s important to address these ahead of time, ensure your plans are properly funded, and make your family aware of the plans so they’re not scrambling to find them when you pass away.
Estate Planning for Young Families
When working on an estate plan for a family with young children, the most important consideration is what happens if you and your spouse pass away before the children reach adulthood. Choosing a guardian can be a challenging decision, but it’s easy to put into action once you make your decision — simply list the guardian (and any backup guardians) in your last will and testament. The greater challenge is finding a way to ensure your children have sufficient financial support in your absence.
Whether you choose to provide financial support for your children through personal savings, life insurance, or annuities, you’ll need to carefully structure the gift. Children cannot own property until they reach adulthood, so an outright gift isn’t an option. Depending on the advice your attorney offers, you may want to consider forming a revocable trust to provide income until the children reach adulthood. At that point, the trust could liquidate and leave the remaining value to the children, or it could continue to provide income until the trust’s assets are exhausted.
Estate Planning for Wealthy Families
For wealthy families, the greatest obstacle to address with estate planning is estate taxes. As of 2019, an individual may leave up to $11.4 million to heirs without triggering estate taxes, while a married couple can shield up to $22.8 million from estate taxes. Anything over these amounts would be subject to a tax of 18% – 40%.
Estate tax planning is a complex process requiring the assistance of an estate planning attorney, tax specialist, and financial advisor. As a team, these professionals will assess the potential future value of your estate and devise a strategy to minimize or avoid estate taxes to the extent the law allows. Some tax strategies you may choose to adopt include:
- Taking advantage of the annual gift exemptions ($15,000 per person for individuals, $30,000 per person for married couples)
- Gifting assets to charity
- Establishing revocable trusts for your children and other family members
- Establishing an irrevocable trust to shield your assets from estate taxes
- Purchasing a life insurance policy to offset the cost of estate taxes
Estate Planning for Blended Families
Blended families often have different financial goals and expectations. Unlike traditional estate plans where all assets transfer to the surviving spouse, it’s not unusual for a spouse in a blended family to gift a portion (or all) of their assets directly to their children. Custody considerations also become an issue, as a step-parent doesn’t have the right to step in as a guardian as long as the biological parent retains parental rights and parenting time.
In this case, establishing a trust for your children is an excellent way to financially provide for their needs while also ensuring a third party (whether it’s a step-parent or estranged biological parent) doesn’t abuse those funds. When you pass away, the trustee could administer the funds for the children’s benefit and monitor the surviving parent’s spending habits. When the children reach adulthood, the trustee could then liquidate the trust and gift the remaining assets directly to the children.
Receive Help With Your Family Estate Planning in Arizona
Whatever your family estate planning needs are, JacksonWhite Law can help you plan for your future. Our team of experienced and dedicated estate planning attorneys can help ensure that your assets are in order and your family is protected in the event of your passing. We provide a wide range of estate planning services to Arizona families including power of attorney, living wills, last will and testaments and much more!
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.
