Brief Intro

The following FAQ section is a list of some of the most common questions I get asked or see floating around online. You can click on each question below for a brief answer. In the coming weeks I’ll be adding full articles on each question, which you can find by clicking on the Learn More link to read more about that particular issue.

If you have a question that isn’t covered below, email me at spencer@schieferlaw.com with your question and I can try to include it into the FAQ section in the future. Please do not send confidential information, and remember that email submissions do not create an attorney-client relationship.

There is no single definition that is correct, but here is how I would break down estate planning: arranging for the strategic management and disposition of your assets upon death or incapacitation through legal documents and professional services. A basic (but critical) estate plan consists of a Will, Power of Attorney (for finance and healthcare decisions), and a Living Will (aka healthcare directive).

Dying without a Will is called dying intestate. The intestacy laws will decide what happens to your estate if you die without a Will. The specific law and end result that applies to you will ultimately depend on your marital and family status when you die. There are differing results depending on whether you were married or not, whether you have kids or not, and whether any kids you did have were in common with your current spouse. Although the intestacy laws try to be fair and/or give a result that matches what people might want, dying without a Will is not ideal and something you shouldn’t do to your family.

Probate is the formal court process of validating a deceased person’s Will (if one exists) and then distributing that person’s estate to creditors, and then beneficiaries based on the terms of the Will (or the intestacy laws if the person died without a Will). In Arizona, the level of court involvement and/or oversight in the Probate process will depend on the size of the estate and whether any contests are made. As you can imagine, the more time and complexity involved in the Probate process results in more money that is owed to lawyers, appraisers, court costs, etc.

If you’ve read even a little about Probate, you’ve probably read that it is something to be avoided at all costs. The negatives about Probate can at times be exaggerated, but Probate has very little positives. It can become a nightmare for the decedent’s survivors and a drain on the estate. Here are some of the main reasons Probate is “bad.” Probate is a public proceeding and so everyone can know your business. Even worse, people can know the business (and finances) of your heirs, most likely your spouse/children. This can bring people out of the woodworks to ask for money, pitch shady business ideas, or take advantage of recent inheritances. Because Probate is public, it can also increase the likelihood that people will litigate to try to get money from your estate. This causes a drain on your estate assets, which will be used to pay for the Probate process and any defenses, as well as any successful judgments/settlements by those contesting your Will or making claims on your estate. Time is also an issue. Although not always the case, Probate can last many years, which in turn ties up assets instead of getting them to your heirs right away (and again, drains your estate). If you want to avoid Probate, you need to read about a Revocable Trust.

A Trust is a legal document that allows for a Trustee to hold legal title to property on behalf of beneficiaries. There are different “types” of Trusts that can accomplish different goals. For estate planning, the most common Trust is a Revocable Trust. A Revocable Trust is a powerful tool that can allow you to avoid Probate when you die. From there, the Revocable Trust can be as simple as a Will (disbursing assets immediately, but without the need for Probate of course), or drafted in a way to achieve other goals, such as creditor protection, death tax planning, and more.

A Will has to go through Probate. A Trust does not go through Probate. A Will only takes effect upon your death. A Trust becomes operative once created, and for instance, can be useful if you become incapacitated. Because a Will must go through Probate, its terms will be available to the public. A Trust is private and the only people that will know its terms will likely be the trustee(s) and beneficiaries.

Commonly referred to as the death tax, the estate tax is the tax you’ll have to pay if your estate exceeds the exemption amount when you die. The gift tax is the amount of tax you have to pay if you gift property to a person in excess of the annual exclusion amount in a given year. Like the estate tax, there is a lifetime gift exemption amount. The exemption amounts for the estate tax and gift tax are unified. So, this means that when you die, you’ll calculate your estate’s value, then deduct any amount of lifetime gift exemption used, and then pay any taxes on the value of your estate above the remaining exemption amount. In 2019, the estate tax exemption amount is $11.4 million. This means that very few people will actually pay estate tax right now. However, the tax laws are constantly changing, and in 2026, the estate amounts will go down by more than 50%.

The marital deduction is a provision in the federal estate and gift tax laws that allows a spouse who has passed away to leave property to the surviving spouse free of any tax. This can provide a potential tax advantage by leaving everything to your spouse. However, for blended families in particular, the marital deduction should not be viewed as the sole reason to leave everything to your spouse. Saving taxes is only one aspect of proper estate planning, and should never trump putting in place an effect plan to provide for your spouse and kids.

Yes, but use caution. Real estate held in joint tenancy with right of survivorship will not go through Probate when you die. The reason is because of the right of survivorship. When you die, the real estate interest you held is transferred to the other owner(s). So, some people think it’s a good idea to hold real estate as joint tenants with their kids (for example) to avoid probate since they plan on giving them the property when they die anyways. The problem? Well, by transferring title to joint tenancy with your kids, you are potentially creating gift taxes while alive, missing out on a full step up in basis for the house when you die (meaning more taxes for your kids when they sell the house), and expose your house to your kids’ creditors and spouses (if they divorce).  Joint tenancy with right of survivorship can be useful, but the pros and cons of your situation should be discussed with a lawyer before using this as a Will substitute.

If you’ve read about the current (2019) estate tax exemptions, then you might be wondering why you need an estate plan at all. If you own less than $11.4 million, and won’t owe any estate taxes, then why do you need an estate plan? Well, estate planning is not just about tax savings. In fact, in my opinion, tax savings is not even the primary reason to engage in estate planning. Estate planning is more about mitigating unnecessary turmoil and grief for your family when you pass, getting the right assets to the right family and friends, and setting up your family for success in the future. With that in mind, everyone should have an estate plan in place, including at a minimum a Will, Power of Attorney, and Living Will.

The question should really be whether a Trust is right for you or not. Everyone should have a Will, no matter what. What, you say? Yes, even if you have a Trust, or plan on setting up a Trust, you also need a Will. A Trust only works if property is held by the Trust (or Trustee, technically). In case you forget to transfer asset(s) to your Trust before you die, a “pour over” Will can transfer your remaining estate over to your Trust. Without a pour-over Will, you run the risk of having your Trust be an empty shell. Now, is a Trust right for you? It really depends on your assets and estate planning goals. If you prefer privacy, want to maintain a little more control on the distribution of your assets, and/or have various people you want to support after you pass, then a Trust would probably be a better vehicle for your goals.

The annual gift tax exclusion is a set amount you are allowed to gift to anyone each year without any tax and/or having to use up your lifetime gift tax exclusion. In 2019, the annual gift tax exclusion is $15,000. This means you can give each of your children $15,000 each year without any tax due. If you are married, then your spouse is also allowed to gift $15,000, and he/she can gift to the same people. Depending on your estate, your goals, and the types of assets you have, it might be a good idea to set up a gift plan to avoid estate taxes, transfer wealth while alive to help younger adult children (while also avoiding taxes), and transferring assets that might not have any tax basis benefits attached when you pass away.

An estate plan should start with a good discussion with an estate planning attorney about your current assets/debts, family situation, and goals. From there, an attorney can start to help you realize some possibilities and strategies. After that, you can decide how much or little you want to plan and figure out something that works with your current budget. To set up a free phone consult and learn about our affordable plans and payment options, contact us here.

A (Durable) Power of Attorney is a legal document that gives an agent of your choosing power to act on your behalf when you become incapacitated or otherwise incapable of making financial/legal/medical decisions for yourself. Typically, with most estate plans you will have a Power of Attorney related to finances and another that addresses medical issues. Learn more.

Yes. Even if you’re married a Power of Attorney can be really useful. For non-emergency medical decisions and dealing with “separate” accounts and/or separate property, your spouse will need a Power of Attorney to act on your behalf should you become incapacitated. This can seem weird since you might assume your spouse can handle all of your affairs if you’re unable to do so. However, other third parties, such as financial institutions, aren’t always aware of your current marital status and/or wishes for privacy. If you don’t have a Power of Attorney (with your spouse as your listed agent), then your spouse would need to start a case in probate court to get guardianship and conservatorship rights over you, which will take time, money and fees. Learn more.

A Living Will (aka Advanced Healthcare Directive) is a legal document wherein you make your wishes known regarding your future medical treatment. For example, you can identify for your agent (in a Power of Attorney) whether or not you want to remain on life support, for how long, under what conditions, etc. A Living Will is important for you to receive the right kinds of medical care should you be unable to communicate those desires later on. It is also incredibly important to put your family at peace and mitigate in-fighting about your wishes and/or what’s best for you.

A Guardianship and Conservatorship are arrangements through Court wherein a person is designated as your guardian and conservator. A guardian will make legal decisions on your behalf. A conservator will oversee your finances. If you become incapacitated, such as being in a coma, then a guardian and conservator will need to be appointed by the Court (unless you have Powers of Attorney already set up).

Under the current landscape, very few people will need to worry about estate taxes. The greater focus for many will be on reducing future income taxes for beneficiaries. This can be accomplished by proper estate planning, and being strategic in how/when certain assets should be gifted, sold, transferred, etc. Additionally, you can help reduce future tax liabilities by properly planning for how your retirement assets will pass when you die.

It depends on the type of Trust you are setting up, but assuming you are creating a Revocable Trust, you will be the Trustee of your own trust (or co-trustee if setting up a joint Trust with your spouse). Once you, and/or your spouse, pass away, then there will need to be successor trustees that are identified. Any future successor trustee should be someone you trust, and someone that can appropriately deal with the remaining beneficiaries of the Trust.

A Revocable Trust does not provide creditor protection while you’re alive. Under a Revocable Trust, you retain all power over the Trust assets. That way, in case you want to revoke the Trust and/or transfer the Trust assets elsewhere, you have the power to do so. With that power comes a price, which is that those assets are accessible by your creditors. That being said, a Revocable Trust can provide future creditor protection for your spouse and/or children or other beneficiaries, depending on how the Trust is set up.

Tax laws are changing all the time. To some extent, a well-drafted estate plan will have enough flexibility that many changes in the tax law won’t necessarily require modification of your estate plan. However, depending on the changes that occur and the nature of your estate, it might be best to change or otherwise update your estate plan. It’s always good to have a discussion with your attorney about any big life changes and whether your estate plan should be updated. A change in the tax laws is also a good reason to discuss with your attorney your current situation and whether the new tax laws mean a change up is needed.

An example scenario helps best to explain this concept. When you buy an asset your tax basis is the amount you paid for it. So, if you paid $100k for an asset your tax basis would be $100k. Let’s say that asset increased in value $50k, and you later sold it for $150k. You’d then be taxed on the $50k increase over your tax basis. Now let’s take that same asset, and let’s say it was $150k when you died. You leave that asset to your son. When that asset transfers at your death, your son gets a step up in basis to the fair market value on the day you passed. So, your son would have a stepped up basis of $150k. Then if he sold that asset at $150k, he would have no taxes due.

Attorneys and other professional have different opinions about this. Generally, in my opinion, it’s best to not leave retirement assets to your “estate” or a Trust that you created. Why? Doing so can cause more of your retirement to be sucked up by income taxes than if you had your spouse, or children as beneficiaries of your retirement. A properly drafted Trust can get around this problem, but it usually causes more complication and complexity than worthwhile, depending on your family’s needs and your goals. Of course, like any estate planning decision, it’s best to discuss your situation with an attorney before deciding either way.

An AB Trust (aka credit shelter trust) is a type of Revocable Trust that sets up two trusts (within the Trust) when you or your spouse pass away. One of the purposes was to preserve the first spouse’s estate tax exemption and avoid estate tax when the second spouse dies. With the portability election taking effect back in 2011, this is really no longer a concern. However, an AB Trust can also provide some creditor protection since the surviving spouse only has limited access to the assets in the A trust, and it’s also a useful mechanism for blended families where the first spouse to die obviously wants to take care of his/her surviving spouse, but also has children from another relationship that should receive an inheritance.

Having a blended family creates some unique needs when it comes to estate planning. If you have children from another relationship, and are married, then you have two separate financial obligations: your spouse and your other children. Without a plan, the intestacy laws usually create an undesirable result (including possibly leaving your ex in charge of your children’s inheritance). Moreover, the absence of a plan can create even more conflict due to competing interests between your spouse and your children. A Will and a Trust are good vehicles to leave a proper plan in place so you take care of your spouse, leave an inheritance for your children, and avoid improper persons from controlling and dissipating your children’s inheritance.