What is a Qualified Terminable Interest Property Trust aka QTIP?

Question:  What is a Qualified Terminable Interest Property Trust?

Answer:  A QTIP trust is a type of irrevocable trust that can be used to give income and principal to a surviving spouse after the first spouse dies and then after the surviving spouse dies give the assets that remain in the trust to the beneficiaries selected by the first spouse to die.  Any irrevocable trust can be drafted to do the same thing.

Estate planning attorneys use a QTIP trust when both of the following facts exist:

  • The first spouse to die wants to leave assets to the surviving spouse that can be used only by the survivor during his or her life (aka a “life estate”).
  • The first spouse to die has an estate that is greater in value than the federal estate tax exemption amount ($5,250,000 for people who die after 2012).

A QTIP contains certain language required by the IRS so that the assets transferred to the QTIP will qualify for the federal estate tax marital deduction and not be included in the estate of the first spouse to die and taxed when the first spouse dies.  Without the special language necessary to qualify as at QTIP the assets transferred into the trust by the first spouse to die would not be eligible for the federal estate tax marital deduction in determining the federal estate tax due on the death of the first spouse.

I typically create a trust for a married couple that creates two or three trusts after the death of the first spouse.  These new trusts created after the death of the first spouse are frequently referred to as the A & B trusts or the A, B & C trusts.  Myself and many estate planning attorneys call the A trust the “survivor’s trust,” the B trust as the “family trust” and the C trust the “QTIP trust.”  Normally the B trust aka the family trust does not contain the language needed to make it a QTIP trust.

When a married person has children who are not the children of his or her spouse, it is very common that the person wants to provide for the surviving spouse during the spouse’s life if the married person is the first spouse to die, but then have the assets that remain in trust go to the children of the first spouse to die after the surviving spouse’s death.  Estate planning attorneys accomplish those objectives by creating a trust that has the A & B trust structure or the A, B & C trust structure.

The article you linked is written on the assumption that the only way to accomplish your goals is to create a QTIP trust if you die first.  Not true.  You an accomplish the same thing by adopting the A/B trust structure and having the B trust (family trust) written to provide for your wife while she is alive and then have the balance of the assets at her death be held in trust for your children.

You are probably wondering what is the difference between the B trust and the C trust (the QTIP)?  In your case the only difference is that the QTIP requires that all of the income be distributed at least annually to the surviving spouse.  The reason for this income distribution requirement is so that the assets transferred into the QTIP will qualify for the federal estate tax marital deduction given to assets transferred on death by one spouse to the surviving spouse.  The legal significance of the federal estate tax marital deduction is that it will allow Bill Gates to leave his $25 billion plus in assets to his wife Melinda and no federal estate taxes will be incurred as a result of that large transfer until Melinda dies.

Because the federal estate tax exemption amount is currently $5,250,0000, you do not need a trust that would create a QTIP unless your estate were to exceed $5,250,000.  It is only when you will be transferring more than $5,250,000 after your death that you need a QTIP trust to hold the excess over the exemption amount.  The trust you and your wife create doesn’t need to create the A, B & C trust structure.  As long as the total value of the estate of each spouse is less than $5,250,000 that spouse does not need for assets transferred to the B trust to qualify for the federal estate tax marital deduction.

Two examples will help to explain how the A & B trust structure and the A, B & C trust structure work in real life.

Example 1:  Homer and Marge Simpson have an estate of $2,000,000, all of which is community property.  They have three children plus Homer has a son with another woman.  Homer wants Marge to be able to use his assets while she is alive and on Marge’s death Homer wants his assets to go equally to his four kids.  They sign a trust that has the A & B trust structure.  Homer dies in 2013 when the federal estate tax exemption amount is $5,250,000 so there is no federal estate tax on Homer’s assets.

Marge, as trustee of their joint trust creates the Survivor’s Trust and the Family Trust.  She transfers $1,000,000 in assets to each trust.  The original trust ceases to exist and now Marge is the trustee of two trusts, the Survivor’s Trust and the Family Trust.  The Survivor’s Trust is revocable and Marge can do whatever she likes with her assets in the Survivor’s Trust.  The Family Trust, however, is irrevocable and cannot be changed.  Homer’s four kids will someday become the beneficiaries of what remains in the Family Trust at Marge’s death.

The Family Trust provides that the trustee has no obligation to pay any income or principal of the trust to Marge.  Marge, as trustee, has sole discretion as to how much and when to transfer assets to Marge or use the assets for Marge’s benefit.  Assets in the Survivor’s Trust have no asset protection because the trust is revocable.  Assets in the irrevocable Family Trust are asset protected from the creditors of the beneficiaries of the Family Trust.  Because the Survivor’s Trust lacks asset protection, Marge should spend money from the Survivor’s Trust first and if possible use the assets in the Family Trust as a rainy day fund.  However, if Marge needs income or principal because the assets in the Survivor’s Trust are not enough to support her Marge can use the assets of the Family Trust for her benefit.

The one potential fly in the ointment that could prevent Homer’s children from inheriting much, if any, assets in the Family Trust is that their inheritance is dependent on Marge not spending it all and/or not making bad investments that decrease the value of the assets held in the Family Trust.  The solution to this problem is to provide in the Family Trust that the trustee will not be Marge.  The choices for trustee of the Family Trust are: (i) the beneficiary of the trust, (ii) a trusted family member or friend or (iii) an institutional trustee that has decades of experience acting as trustee for trusts.  I recommend the institutional trustee for the following reasons:

  • They have professional money managers who know how to invest and grow assets.
  • They have a deep pocket and can be sued if they lose money.
  • Best choice for maximum asset protection for the heirs because no heir will ever be a trustee.

The only downside for having an institutional trustee is that they charge a fee for their trustee services.  A common fee is 1.25% of the assets under management each year up to $5,000,000.  This may seem like a lot, but it isn’t if you consider the institutional trustee probably will make more money each year than the surviving spouse and children would make and the fee structure gives the trustee an incentive to grow the assets.

Example 2:  Same facts as Example 1 except the Simpson’s total net worth is $12,000,000.  Their joint trust provides that on the first spouse’s death the survivor’s assets will go into the Survivor’s Trust, the Family Trust will be funded with the deceased spouse’s asset up to an amount equal to the federal estate tax exemption amount ($5,250,000 in 2013), and the excess over that amount will go into the QTIP Trust.

Marge creates three trusts, the Survivor’s Trust (revocable), the Family Trust (irrevocable) and the QTIP Trust (irrevocable).  Marge transfers $6,000,000 to the Survivor’s Trust, $5,250,000 to the Family Trust and $750,000 to the QTIP.  Both the Family Trust and the QTIP Trust provide that Marge is the current beneficiary and the four children are the beneficiaries after Marge dies.  The only difference between the Family Trust and the QTIP Trust is that distributions from the Family Trust are solely at the trustee’s discretion, but the trustee of the QTIP must distribute to Marge each year an amount that is not less than the income earned by the QTIP Trust during the year.

Note that the A, B & C trust structure allows the Simpson’s to avoid federal estate tax on an amount not less than the combined federal estate tax exemption amount of both spouses, which currently is $10,500,000.  The actual amount of federal estate taxes saved could be much higher than the exemption amount because the entire amount of assets in the Family Trust is not subject to federal estate tax when the second spouse dies.  For example, if Marge were to die twenty years after Homer and the value of the assets in the Family Trust had grow to $12,000,000 none of the $1,2000,000 would be subject to federal estate tax.

For a more detained discussion of federal estate tax law and the QTIP Trust read Qualified Terminable Interest Property Trust.

By |2016-12-13T20:33:27-08:00July 30th, 2013|

Do You Need An Estate To Create An Estate Plan?

Forbes:  “When I would tell people that I was working on a book about estate planning, many of them looked at me quizzically because they weren’t sure what I meant. Others said, “Oh, that’s not something I need, because I don’t have an estate.”

Contrary to popular misconception, you don’t have to own a big house to have an estate. Your estate consists of everything you own when you die, including your home, personal property, investments, bank accounts, retirement plans and any interests in a family business or partnership. Beneficiary designation forms control who gets retirement accounts, along with life insurance proceeds. For most other assets, you need a will or living trust that says who gets your stuff.”

By |2016-12-13T20:33:28-08:00July 11th, 2012|

I Got A Divorce. What Should I Do With My Estate Plan?

Question:  I was recently divorced, but my estate plan names my former spouse in a few places.  What should I do?

Answer:  Revise your estate plan!  You should always think about updating your estate plan when a major life event happens.  Divorce or legal separation from your spouse is one of these events.  There are probably a number of places in your current estate plan that name your former spouse.  These are the areas that you should consider updating:

  • Incapacity planning.  Who did you name as your agent under your healthcare power of attorney or financial power of attorney?  If you were to become incapacitated, your current estate plan probably says that your spouse should make all of your healthcare decisions and should have the ability to access your finances and make financial decisions.  Since you probably do not want your former spouse to make these decisions for you, consider changing your healthcare agent and financial agent to someone like a trusted friend or family member.
  • Inheritance planning.  Your current estate plan probably states that if something were to happen to you, all of your assets should go to your former spouse.  After a divorce, you probably don’t want your former spouse to inherit everything.  As such, you should change the primary beneficiary of your will or trust.
  • Life insurance.  Your current life insurance policy might name your former spouse as the beneficiary of that policy.  Talk to your life insurance company about updating the beneficiary designations on the policy.  Another life insurance issue could arise if your divorce settlement requires you to maintain life insurance for your children. If so, you should consider creating an irrevocable life insurance trust which will ensure that the life insurance benefits are properly transferred after the divorce, and protect the benefits from future events and estate tax issues.
  • IRA and other accounts.  When you set up your IRA, you had to designate one or more persons to be the beneficiaries of that account should something happen to you.  If you set up the account while you were married, you might have listed your former spouse as the beneficiary.  Contact your IRA company to update the beneficiary designations on your account.  Also, if you set up your bank accounts with a “pay on death” designation, be sure to update these designations as well.
By |2016-12-13T20:33:28-08:00July 9th, 2012|

Including Passwords With Your Legacy

Question:  I know I should leave the passwords for my computer / files / email / social media with my estate plan.  What is the best way to do this?

Answer:  Store a list of your important passwords somewhere safe that isn’t on your computer.

More and more people are using their computers to store their important, personal information.  For example, if you use financial accounting software, it may be next to impossible to settle your estate without being able to access that information.  However, because of the sensitive nature of this information, you may have your files computer password protected.  Also, things like your social media accounts and your email may need to be accessed after your death.  Sure, your family can spend hundreds of dollars to hire an expert to decrypt your information, but the better solution is to leave your passwords somewhere that your loved ones will find.

The goal is to keep your passwords secure during your life, but readily accessible after that.  Here are some options we suggest:

  • Put a list of all of your passwords and accounts in your estate planning portfolio.  When you keep everything together in one central location, it makes it much easier for your loved ones to follow your instructions and wishes.
  • Put a list of your passwords and accounts in your safe deposit box.  If you don’t have one, ask the lawyer to drafted your Will to store it with your client file.
  • Tell your personal representative or spouse about your passwords and accounts.
  • Don’t include your password in the text of your Will.  You may have to change your password, which would then require you to amend your Will.  Also, when your Will is entered into probate it becomes a public record.  You don’t want your passwords to be public record.
  • Avoiding the issue by using an obvious password is not a good idea.  Even though it might be obvious to you, it may not be obvious to your loved ones.  An example of an obvious password with be your pet’s name, your children’s name or birthdate, or your name or birthdate.
  • Don’t store your password list on your computer.  If your computer is password protected, your loved ones won’t be able to access the list.
By |2016-12-13T20:33:29-08:00May 23rd, 2012|

How Do I Get Email Access To A Loved One’s Account After Death?

Question:  I want to access the email account for my deceased loved one.  How do I do this?

Answer:  In many cases, you can contact the email provider and provide them some information demonstrating that you should have access to the account.

During the difficult time after a loved one passes, it is easy to forget about some of the small things, like accessing your loved one’s email account.  In a perfect world, your loved one would have left their email information and password in a safe place for you to find, perhaps even with their estate plan.  However, people often overlook small details like these when preparing their estate plan.

If you cannot locate your loved one’s email password, you can likely gain access by contacting the email provider.  The email provider is whoever is listed after the @ symbol in the email address.  Most email providers will turn over email account information to the deceased’s next of kin with sufficient proof.

  • Google’s Gmail requests a death certificate, a document giving you power of attorney over the person’s affairs and the full header of an email sent to you by the deceased’s account.  You will also have to provide your name, address, email address and a copy of your photo identification as well as the deceased’s email address.  For more information see: http://tinyurl.com/6mu6jcn
  • Microsoft’s Hotmail also requires a death certificate, a document giving your power of attorney or showing that you are the personal representative (executor) of the deceased’s estate.  You will also need to provide the deceased’s email address, first and last name, date of birth, the city, state and zip the person gave when they created the account, approximately when the account was created and last accessed, and your shipping address.  Hotmail will mail you a DVD with all of the contacts and emails stored in the account.  For more information see: http://tinyurl.com/6ozgs46
  • Yahoo won’t grant access to anyone without a court order.  So, if your loved one uses a Yahoo account, they must leave their password or you will not be able to access their account without a court order.
By |2016-12-13T20:33:29-08:00May 23rd, 2012|

Three Must Have Documents Everyone Should Have

There comes a point in every person’s life when it is time to sit back and take stock of what you have accomplished.  This could be a beautiful family, a lovely home or a thriving business.  Whatever the source of your pride, it makes sense to protect it, just like you would any other asset.  You protect your home and your business with insurance, but what about yourself and your family?

Protecting yourself and your family doesn’t have to be difficult or expensive.  But it does need to be done.  Here are the three must have documents everybody should have to protect themselves and their families:

1. Last Will & Testament

You probably know what this document is.  It disposes of your assets after your death.  Without a Will, your state of residence determines how your assets should be divided.  But can you really depend on some ambiguous state laws to protect your family?  Wouldn’t it be better to lay everything out in such a way that ensures your wishes are followed?  This is what a Will does for you.

What many people don’t know about Wills is that a Will is where you name the guardian for your minor children.  Don’t have a Will?  Now the state gets to pick a guardian for your kids.  Do you trust the state to pick the best possible person to raise your children?  I don’t know many people who would.

Your Will also names the Personal Representative of your estate.  This is the person responsible for administering your estate by paying your final taxes, paying any creditors and collecting and distributing your property.  Once again, without a Will, the state will pick your Personal Representative too.

Because your Will handles some of the most important decisions of your life, it is the number one on my must have documents list.  Forcing your heirs to have to look to the state to sort out these important decisions is costly, time consuming, and totally unnecessary.  And, since over half of all Americans don’t have Wills, the process will likely get even worse.  Save your family the burden of having to sort through all of these issues and write your Will.

2. Healthcare Power of Attorney

You’ve probably heard of this document too.  A Healthcare Power of Attorney designates an agent (someone you pick) to make your healthcare decisions should you not be able to do so yourself.  Without a Healthcare Power of Attorney, your friends and family members will have to go to court and get a court order authorizing someone to make your healthcare decisions.  It could end up being your parents who you haven’t spoken to in years, or your sibling who makes terrible decisions.  Healthcare decisions are among some of the most personal decisions anyone can make.  Wouldn’t you want someone you know and trust making those decisions for you?

A Healthcare Power of Attorney should contain language waiving healthcare privacy laws (HIPAA) so that your healthcare agent can get a full understanding of your condition before making any healthcare decisions.  A HIPAA waiver can be contained in your Healthcare Power of Attorney, or it can be a separate, stand alone document.  Without a HIPAA waiver, doctors and hospitals may not disclose your healthcare information.  Again, without a HIPAA waiver, your loved ones will end up back in court, fighting over what they think is right for you.  Wouldn’t you rather make those decisions?

3. A Durable Power of Attorney

In our office, we like to call a Durable Power of Attorney a Financial Power of Attorney.  This document authorizes an agent that you choose to make financial decisions for you if you are incapacitated.  Can you imagine what would happen if you were incapacitated?  Could anyone access your bank account to pay your medical bills?  What about your mortgage and utility payments?  How about buying groceries for your kids?  What about your business?  An agent under a Financial Power of Attorney can do those things for you.  This is why a Financial Power of Attorney is one of my top three most important documents you must have.  Your agent can keep your life running smoothly when you can’t do so yourself.

Creating this document can be critical.  You may only be unconscious temporarily, perhaps because of a post-surgery complication, but what about everything that was happening in your life? Your agent can close that house you were selling, deal with a credit card company, or keep your business operating smoothly.  The time and effort to create a Financial Power of Attorney is minimal, but the potential payoff is enormous.

By |2020-03-23T07:37:44-07:00May 22nd, 2012|

Should Couples Plan Together or Separately?

Forbes:  “How married couples and domestic partners structure their estate plans can make the difference between whether a family stays connected or gets blown apart after the first spouse or partner passes away. Things can be even more complicated and volatile in blended families – when there are step and half siblings and stepparents in the mix.

The first issue for all couples to resolve is whether to be represented jointly by the same estate planner or for each of you to have your own lawyer. Joint representation can be more cost-effective, since you only have to pay one set of estate planners, and more efficient–working together enables you to divvy up tasks as you prepare to meet with your estate planners. Another advantage is that it builds greater trust and more open communication between the two of you, and possibly with all of the children in your lives.”

By |2012-04-11T08:28:14-07:00April 11th, 2012|

Should I Update My Will?

NJ.com:  Q. Our daughter was very young when my wife and I had wills prepared. Our daughter is now married with a different last name. Is it necessary to change our will to reflect this? If yes, must we use a lawyer to make the change?

– BB

A. No, but it might be a smart investment anyway.

Your executor is charged with identifying and notifying your intended beneficiaries, said Frederick Schoenbrodt, an estate planning attorney with Neff Aguilar in Red Bank.

“If there is no ambiguity regarding who you meant when you referred to your daughter in your will – and there probably isn’t – then your executor will make the gift to your daughter, even if she has taken a new surname,” he said.

The will reflects your intent, and the process of settling your estate should facilitate that intent, he said.

“While formalities in will drafting are important, the probate and administration process is not so formalistic that your daughter’s name change as a result of her marriage would frustrate your clearly stated intent,” he said.

But there may be other reasons to revisit your will.

By |2012-01-25T08:55:15-08:00January 25th, 2012|

I Made a Will… Now What?

Question:  I made a Will, now what do I do with it?  Where should I keep it and who should I tell about it?

Answer:  You may have the best drafted, most well thought out Last Will and Testament, but it will be useless if no one can find it.  There is no central database for Wills or estate plans.  This means that the only way your loved ones will know about your Will and where to find it is if you tell them!

First, you should put your original Will and other estate planning documents in a safe place, like a safe deposit box.  Tell the appropriate people that you have an estate plan and it can be located in your safe deposit box.  You probably want to tell your spouse, children, parents or whoever would be the person searching for your estate plan should something happen to you.  We also suggest making copies of your Will and other estate planning documents and giving them to person who you have picked to be responsible for administering your estate (your personal representative).  Alternatively, you can scan the documents to your computer and email them to trusted people, or put the documents on a CD and give the CD to trusted people.   This is an important step, not only with your Will, but also if you have healthcare directives or powers of attorney.  If you created a Healthcare Power of Attorney, make sure you give a copy to the person you designated as your healthcare agent.  That way the person knows they have been nominated as your healthcare agent, and know where to find the document giving them authority to make decisions if there is an emergency situation.  The same is true if you created a Financial Power of Attorney.  By making sure your loved ones know your wishes or how to access them now, you can save them the stress and heartache of trying to find them during a difficult situation.

By |2016-12-13T20:33:36-08:00January 12th, 2012|

What is a Power of Attorney?

Question:  I’ve heard the phrase Power of Attorney but I don’t know what it means.  Do I need a Power of Attorney?

Answer:  A Power of Attorney is a legal document in which in a person (called a “principal”) delegates decision making authority to another person (called an “agent”).  Powers of Attorney can be very broad giving the agent the ability to do every act that you could do yourself if you were able, or Powers of Attorney can be limited to cover only specific decisions and events.

When people refer to a Power of Attorney, they are usually talking about either Healthcare Powers of Attorney or Financial Powers of Attorney.  As the name suggests, a Healthcare Power of Attorney allows the named healthcare agent to make medical and healthcare related decisions for the principal if the principal becomes incapacitated and unable to make decisions on their own.  As long as you are able to make healthcare related decisions on your own, your healthcare agent will have no authority to make those decisions for you.   A Healthcare Power of Attorney only becomes effective if you are incapacitated.   A Financial Power of Attorney allows the agent to make financial decisions on behalf of the principal if the principal is unable to make those decisions on their own.  This includes the power to manage financial assets, buy and sell property, pay the principal’s bills and more.  While your Financial Power of Attorney becomes effective if you become incapacitated, it can also become effective immediately if necessary.  This may be a good idea for people who will be leaving on a military deployment or who will have an extended absence from the United States.

Everyone over the age of 18 should have both a Healthcare Power of Attorney and a Financial Power of Attorney.  If something happened rendering you unable to make decisions for yourself, your family could wind up spending thousands of dollars just to have someone appointed by the court to make those decisions for you – without any input from you. Whoever the court appoints may or may not make the decisions that you would have wanted.  By planning today and creating Powers of Attorney, you can be sure that the best possible people are making your healthcare decisions and handling your assets if you are unable to do so yourself.

Powers of Attorney are just one part of a comprehensive estate plan.  Every KEYTLaw estate plan contains both a Healthcare Power of Attorney and Financial Power of Attorney.

Our Two Estate Plans

Our two estate plans described in detail below give you the option to pick the plan that is best for you.  Our estate plans are:

  • Bronze Estate Plan: $1,997 for a single person and $2,497 for a couple.  This plan does not include a revocable living trust. To purchase the Bronze estate plan complete our Bronze Estate Plan questionnaire.
  • Gold Estate Plan: $2,997 for a single person and $3,497 for a couple.  This plan includes a revocable living trust that provides that the assets in your trust pass automatically on your death (or on the death of both spouses if you are married) to an irrevocable beneficiary controlled asset protected trust created for each of your heirs and their descendants.  Your heirs inherited assets in their trusts will be protected for life from their creditors, ex-spouses and bankruptcy courts.  Each heir's trust is also a "dynasty trust" that creates a trust for your heirs children on the heir's death. See "A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust." If you bought our Gold LLC you get a $500 discount off the price of this estate plan.  To purchase the Gold estate plan complete our Gold Estate Plan questionnaire.

By |2022-11-12T08:11:52-08:00January 12th, 2012|

What Is Estate Planning?

Question:  What is estate planning?  What documents make up an estate plan?

Answer:  Simply put, estate planning is planning for your death or incapacity, including where you want your assets to go after your death.

A comprehensive estate plan should have the following primary documents:

Last Will and Testament:  this is a legal document in which you name where you want your property to go after your death.  Your Will also names a guardian for minor children, a conservator for the assets to be owned by minor children and/or incapacitated adults, and a personal representative to manage your estate.

Living Trust:  like a Will, a Trust specifies how you want your assets to be distributed upon your death.  Unlike a Will, a Trust allows you to control the distribution of the assets to your beneficiaries, instead of just giving it to them outright like you would with a Will.  Your Trust names an individual or institution to manage the assets placed in trust (called a “trustee”).  A Trust will help you avoid probate since the assets owned by the Trust are not part of your estate, so a probate is not required to transfer those assets.  A Trust is also beneficial if you become incapacitated, since your trustee can immediately manage the trust and make sure your spouse and dependents are cared for.  You can have both a Will and a Trust, or just a Will.

Healthcare Power of Attorney:  this is a legal document which permits another person to make healthcare decisions for you if you are unable to do so yourself.

Financial Power of Attorney:  this document delegates someone to make financial decisions and manage your assets if you are unable to do so yourself.  For example, a Financial Power of Attorney authorizes your agent to pay your mortgage or medical bills out of your bank account if you are mentally incapacitated.

Living Will:  this is where you specify your end-of-life wishes.  The vast majority of Americans would not want to be kept alive artificially if they were in a persistent vegetative state or irreversible coma.  A Living Will communicates these wishes for you when you are unable to do so yourself.

By |2017-10-08T09:41:34-07:00January 10th, 2012|

What is Community Property?

Question:  What is community property?  Which U.S. states are community property states?  What is the difference between community property and separate property?

Answer: Community property and separate property are two different ways that a married individual holds property.  Only 9 states in the U.S. recognize community property:  Arizona, California, Idaho, Louisiana, New Mexico, Texas, Washington and Wisconsin.  Puerto Rico also allows property to be owned as community property.

Arizona Community Property vs. Separate Property

Community property is all property acquired during marriage, except property acquired by gift or inheritance, or property acquired after the service of a petition for divorce, legal separation or annulment if the petition results in a decree of divorce, legal separation or annulment.  A.R.S. § 25-211.

Separate property is all real and personal property owned by an individual before marriage.  Separate property is also property acquired during the marriage by gift or inheritance, or property acquired during the marriage, but after the service of a petition for divorce, legal separation or annulment provided that the petition results in a decree of divorce, legal separation or annulment.  A.R.S. § 25-213.

By |2016-12-13T20:33:36-08:00January 10th, 2012|

I Want My Spouse and Kids to Inherit Everything. Do I Need a Will?

Question:  I’ve heard that my spouse and children will inherit my assets if I don’t have a Will.  If I want my spouse and children to inherit everything, why would I need a Will?

Answer:  The idea that your spouse and children will get everything is just a general guideline, it may or may not happen in your particular situation.  And, even where the law provides that your spouse and children will inherit your assets, it might not work like you think.

Arizona’s laws of intestate succession generally provide that your spouse and/or children will inherit your assets upon your death. If your children are all children of your surviving spouse, then your surviving spouse would get your entire estate.   However, if you have children that are not also children of your surviving spouse, one half of your separate property will pass to your surviving spouse and the other half of your separate property plus your entire one half interest in the community property will pass to your children.  This could be a big problem for your surviving spouse.  In Arizona, the majority of most married couple’s assets are owned as community property.  Community property is all property acquired during the marriage, except that property that was obtained via gift or inheritance.  If you have children that are not children of your surviving spouse, this means that the bulk of your assets would go to your children, not your spouse.  This could have serious financial implications for your surviving spouse. Relying on the laws of intestate succession gets even more dangerous if you have step-children.  Arizona law does not provide for step-children, meaning your step-children will inherit nothing if you die without a Will.

A Will also serves other functions than just distributing your property to the right people.  If you have minor children (under the age of 18), your Will also appoints a guardian for your minor children.  A guardian is responsible for raising your minor children.  A guardian acts like a parent would, providing education, food, medical care and supervision.  It is always a good idea to name a guardian, even though your surviving spouse would likely raise your children if you passed away.  In the event both you and your spouse are in an accident, you want to be sure your children have the best possible care.  You should consider naming a parent, sibling or other trusted individual that you know will take good care of your children. If you don’t have a Will, the court will appoint a guardian for your minor children – without any input from you.

You can also name a conservator in your Will.  A conservator is responsible for managing the assets of someone who is unable to manage assets own their own.  Children under the age of 18 need a conservator to manage any assets they inherit.  If you are responsible for a special-needs individual, they too may need a conservator to manage their assets.  A conservator will collect and manage the assets belonging to an individual and then use those assets to pay for the individual’s care, education and support.  If you have a surviving spouse, he or she would likely fill this role.  However, naming a “backup” conservator can ensure that your legacy is properly handled, regardless of the circumstances.  You may want to name the same person as guardian and conservator, however this is not required.

Your Will should also name a personal representative.  A personal representative, also known as an executor, is responsible for managing your estate after your death.  This includes collecting your assets, opening a probate if required, dealing with your creditors, distributing your estate to your beneficiaries, and paying any taxes you might owe.  This is the person that is ultimately responsible for your legacy, and making sure your assets go where you want them to go.  As such, this should be someone who you completely trust to handle your property according to your wishes.  If you don’t have a Will appointing a personal representative, the court will appoint one for your estate – again, with zero input from you.

If you have any other questions about Wills, please call Arizona estate planning attorneys Richard Keyt (480-664-7478 or [email protected]) or his son Richard C. Keyt (480-664-7472 or [email protected]).

By |2016-12-13T20:33:36-08:00January 10th, 2012|
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