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If you have consulted with an estate and trust attorney about your estate plan, you can give yourself a pat on the back.  However, bear in mind that not all estate plans account for the years during which you may be unable to manage your own financial affairs and make your own healthcare and lifestyle decisions.

The aging process is generally very gradual, and by the time the elderly reach the stage of requiring protection of this type, their mindset and objectives have changed.  Initially, the elderly want guidance how to leave their property to their loved ones.  Then, the elderly become concerned that their assets may run out before they pass away.  Finally, the greatest concern in the minds of the elderly is often the fear that those close to them will abandon them in their final years when their needs for care are the greatest, especially if they have no funds to pay for the care that they need.  Below is a laundry list of considerations for planning for the twilight years.

Revocable Living Trust and Powers of Attorney.  These documents will identify individuals or companies who will have authority to manage your affairs and make your healthcare and lifestyle decisions if you are unable to do so yourself.  If you do not have a revocable living trust or powers of attorney in effect, or if it has been more than two years since they have been reviewed or updated, you should consult with an attorney.  A properly funded revocable living trust is the most effective method to designate someone to manage your property, but it should not be considered a substitute for powers of attorney.

Guardianship and Conservatorship.  If you have not planned for the eventuality of your own inability to manage your affairs and to make decisions related to your own healthcare and lifestyle, then it will be necessary for your loved ones to request that the probate court appoint someone to handle those duties on your behalf.  [NOTE:  Consideration of conservatorship issues applies equally to the non-elderly in cases such as mental illness, mental deficiency, mental disorder, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by a foreign power or disappearance; see Arizona Revised Statutes Section 14-5401.]  If you have not designated someone to function in the roles of your guardian and conservator, Arizona statutes will determine who has priority to manage.  Courts generally will defer to your written wishes if you have planned for this eventuality on a timely basis.  Courts generally try to honor the wishes as expressed by an incapacitated person even after it has determined the person to be incapacitated, but the Courts also must reconcile the fact that the incapacitated person also may suffer from a cognitive impairment that impacts their judgment.  Further, it is often the case that a guardian and conservator are appointed only after some physical or financial abuse of the elderly person has occurred.

Fiduciary Roles – Who Should Function.  With proper planning a person may select the individuals or companies whom the wish to function in the role of a fiduciary.  A fiduciary is someone who acts on behalf of and for the protection of another person.  Examples of a fiduciary are a trustee, agent under a power of attorney, personal representative (a.k.a executor), guardian, and conservator.  Selecting a fiduciary requires careful consideration of an elderly person’s objectives, estate value and composition, and family situation.  Conflicts of interest can result in unintended departures from the wishes of the elderly person, especially in blended families.  Many individuals are beginning to recognize the value of an independent professional fiduciary in managing at least their financial affairs, to reduce the potential for conflicts of interest and abuse.

Advisors for Fiduciaries.  Professional advisors (i.e. CPA, Attorney, Financial Advisor, Insurance Advisor) provide services that are critical for the elderly.  When a fiduciary steps in to manage the affairs of the elderly who no longer are able to perform that role for themselves, the professional advisors often know more about the affairs of the elderly person than the fiduciary.  In cases where the elderly person had no advisors, fiduciaries often are left scratching their heads as to where to start to recreate financial records, determine whether income tax returns have been filed, determining which bills are appropriate to be paid, etc.  Further, even if an elderly person did not have any professional advisors, a fiduciary should seek the counsel of professional advisors to make sure that the fiduciary does not engage in conduct that results in personal liability to the elderly person or to their heirs for failing to properly manage the elderly person’s property.

Long-Term Care Planning.  With advancements in medical technologies, the life expectancy continues to increase.  However, when the elderly are no longer able to care for themselves, someone must step in to care for them.  At a minimum, an elderly incapacitated person should plan to pay in the range of $3,000 to $5,000 per month for long-term care at a care facility.  That figure increases to $10,000 to $15,000 per month for in-home care.  Many individuals are opting to insure against the risk of these substantial long-term care expenses by purchasing Long-Term Care Insurance or Disability Insurance.  After a person’s resources are exhausted, the State of Arizona, through the Arizona Long Term Care System (“ALTCS”).  If an elderly person takes timely action, it is possible to plan for the eventuality of incapacity, and still preserve some of the elderly person’s estate for their own supplemental needs or for their family members.

When a person plans their estate, it usually is with the primary objective of providing for their family members if they pass away.  However, the primary duty of an estate planning lawyer is to the client.  These considerations impact the quality of life and peace of mind of an elderly person much more than how their property will be divided when they pass away.  Planning of the type identified above has the additional benefit of preserving more wealth for the heirs and beneficiaries of the elderly person, by (1) streamlining the administrative duties of the fiduciary, (2) creating value through financial and insurance planning, and (3) reducing the potential for financial abuse by a fiduciary.  If you have not done so already, you should contact your estate planning counsel to discuss the propriety of these tools and considerations for your own situation.

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Am I Too Young for Estate Planning?

While we all wish to live a long and healthy life, the reality is we never know when our lives will be cut short. There are some situations where an illness or condition is discovered, where people will still have the opportunity to work towards settling their affairs and plan for their deaths, but this is the exception. In all stages in life there are different reasons for estate planning: whether young or old, married or single, modest assets to substantial assets, with thought out estate planning you can ensure that your wishes will be carried out. Planning ahead can also protect your loved ones by saving them time, money, and unnecessary frustration.  For a young family with a modest estate, we recommend term life insurance made payable to a trust.  The trust can provide protection for your spouse and your children.  Within this trust, you also have the option of putting special restrictions on your beneficiaries’ inheritance; for example, you have the option of staggering your children’s inheritance over their lifetime, rather than giving the money to them outright upon your passing. For single clients or married clients with no children, it is important to plan who you want to inherit your estate; if you do not decide for yourself, it will be decided by the government according to the laws of intestacy.  For clients with assets that total over $1,000,000*, planning is especially important to avoid estate tax.  The estate tax is scheduled to come back in 2011 with a $1,000,000 exemption and a 55% rate, meaning estates worth over $1,000,000 will be taxed at a 55% rate on anything over $1,000,000.  *It is likely that with the Republican dominated election that the estate tax exemption will be increased.  If Congress does not act, the exemption reverts back to the 2001 value of $1,000,000.

The bottom line is that you are never too young, old, poor or rich to benefit from estate planning. I have adopted the unofficial motto of “no one wants to do it, but everyone is happy when it is done”. I know it is not the most exciting use of time and money, but I see the calming change in demeanor when my clients sign their documents and leave the office. The calmness comes from the peace of mind knowing that their loved ones will be cared for in the event their life is cut short. If you have already prepared an estate plan that has not been reviewed in some time, or if you would like to learn more about recent changes in the law, you may benefit by having your estate plan reviewed and possibly updated. If you would like to have your estate plan reviewed, please contact Dana Law Firm, P.A. at (480) 515-3716 or visit our website at www.danafirm.com.  We offer a free initial estate planning consultation to create or review estate plans, and our area of expertise also extends to probate, trust administration, and estate litigation.

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Will vs. Trust

One of the most common questions that individuals want answered when planning their estates is whether to use a will or a trust for their estate planning.  There are many “variables” in the formula for this question, and even then, there is the variable of personal preference that factors into the equation.  Ultimately, an individual should use the method that is most in line with the estate planning objectives that they value the most.  Below are some objectives in planning that an individual can accomplish using a revocable trust.

1 – Planning for incapacity. One of the benefits of a revocable trust is that it can plan for the incapacity of the person who creates the trust.  If a person becomes unable to manage their own property, a successor trustee is able to step in to manage their affairs on behalf of that person.  If a person does not have documents in place that provide for management of their affairs, management of the affairs of the incapacitated person generally will be subject to oversight of the probate court through a conservatorship proceeding, which is much more costly than a trust administration.

2 – Clarity in ownership. When property is owned by a trust, the terms of the trust will clarify that the trustee is managing the property for the benefit of the beneficiary, and not for the trustee’s own personal benefit.  In some cases, individuals use joint ownership with survivorship features to plan their estates in order to give a 3rd party transaction authority over certain assets.  Joint ownership often creates more problems than it solves.  For example, if one joint owner has creditor problems, including obligations to a divorced spouse, the IRS, or other liabilities, the law may permit a creditor to place a lien on the jointly owned property.  An additional problem created by joint ownership is how to handle a division of jointly-owned property in the event that the parties no longer want to own the property jointly.  The terms of a person’s last will and testament generally do not govern property that is owned jointly with rights of survivorship.

3 – Clarity in administration. If an individual becomes incapacitated, their successor trustee will have clarity from the trust agreement with regard to the management of the property owned by the trust, who the lifetime beneficiaries are, and whether the trustee has discretion in making distributions.  Discretionary authorities are critical in the event the beneficiaries require long-term care as discussed below with regard to Creditor Protection.  Further, in circumstances where an individual marries later in life and has children from a prior marriage, a trust can clarify that a surviving spouse will have rights under a trust during his or her lifetime, but when the surviving spouse passes away, the property can then be distributed to the children of the spouse who passed away first.

4 – Creditor Protection. Proper trust planning and administration can incorporate creditor protection features for individuals who may end up in creditor problems.  For example, an individual who creates a trust for a child can remain confident that the child will benefit from that trust for their lifetime with proper management, often in spite of the fact that they may have a divorce or bankruptcy.  Assets owned by an irrevocable trust generally are not considered to be owned by the beneficiaries, and therefore, not subject to claims of the beneficiaries’ creditors.  In cases where a person requires long-term care, assets inside a trust can be considered supplemental, and they won’t disqualify a person in need from receiving certain government benefits.

5 – Avoid a public probate proceeding. This consideration goes hand-in-hand with the consideration of planning for incapacity.  A revocable trust keeps a person’s financial matters out of the probate courts upon the death of the person who created the trust, as well as upon their incapacity.  A probate proceeding is a process governed by state statutes, whereby the assets are accounted for, managed by an executor, and divided among a person’s heirs or their named beneficiaries.  A trust administration is a private proceeding, disclosed only to the beneficiaries, whereas many aspects of a probate proceeding are made available to the public.

6 – Income tax and estate tax planning. Trust planning can be a critical aspect of minimizing income tax and estate tax obligations.  Trusts can be used to stretch out benefits under retirement accounts, and yet still make sure that the retirement accounts benefit the appropriate individuals in accordance with an individual’s wishes.  Trust planning can protect life insurance proceeds from both income tax and estate tax, and can preserve federal estate tax exemptions for both spouses.

7 – Cost. The cost to create a revocable trust generally is greater than the cost to create a will.  A trust also is a separate entity that must be funded, which means that assets must be re-titled to the name of the trust if an individual wishes for the assets to be governed by the trust.  However, the administrative costs are nominal when compared with the costs of litigation, taxes that shouldn’t have been paid, and loss of principal to creditors.  The greatest cost may be that a person’s wishes in some cases are not effectuated simply because the individual chose not to invest the money in an estate plan that would have memorialized their wishes properly.