People often believe that estate planning is only for those who have substantial assets, but estate plans can benefit everybody. In general, estate plans allow people to:
- Direct medical care & other affairs during possible incapacitation; and
- Direct the distribution and/or management of his/her assets after his/her death
In particular, estate planning allows people to specify how the assets they leave behind will be distributed, to specify steps they would like taken to prolong their lives, to designate another to act on their behalf for non-healthcare-related matters if they become incapacitated, and to provide for loved ones after their deaths in a supervised manner that is consistent with their desires.
Direct Medical Care & Other Affairs During Incapacitation
While there are many different types of powers of attorney, two of particular importance in the context of estate planning along with another document that expresses a person's end-of-life preferences:
- Durable general power of attorney;
- Health care power of attorney; and
- Living will.
Durable General Power of Attorney
In the event that a person becomes incapacitated, a durable general power of attorney will permit another, called an attorney-in-fact, to act in that person's stead in regard to most types of matters, with the exception of health care matters.
Arizona law requires that a durable general power of attorney be: 1) written, 2) contain language that clearly indicates that the principal intends to create a power of attorney and clearly identifies the agent, 3) signed or marked by the principal or signed in the principal's name by some other individual in the principal's conscious presence and at the principal's direction, 4) witnessed by a person other than the agent, the agent's spouse, the agent's children or the notary public, and 5) executed and attested by its acknowledgment by the principal and by an affidavit of the witness before a notary public and evidenced by the notary public's certificate, under official seal. A.R.S. § 14-5501.
Health Care Power of Attorney
Unlike a durable general power of attorney, a health care power of attorney is limited to health care and health care-related matters.
An Arizona health care power of attorney can be the broadest health care directive permitted under Arizona law. It can allow an adult to absolutely designate one or more other adult individuals to independently make health care decisions on that adult's behalf or to provide funeral and disposition arrangements in the event of the person's death or it can give specific instructions. Moreover, this includes not only treatment decisions, but decisions about the medical personnel and medical facilities at which a person should be treated.
Arizona law requires that a health care power of attorney be: 1) written, 2) dated, 3) signed, and 4) notarized or witnessed by at least one adult who affirms that the notary or witness was present when the person dated and signed or marked the health care power of attorney and that the person appeared to be of sound mind and free from duress at the time of execution of the health care power of attorney. ARS § 36-3221.
The notary or witness shall not be any of the following: 1) A person designated to make medical decisions on the principal's behalf, 2) A person directly involved with the provision of health care to the principal at the time the health care power of attorney is executed. If a health care power of attorney is witnessed by only one person, that person may not be related to the principal by blood, marriage or adoption and may not be entitled to any part of the principal's estate by will or by operation of law at the time that the power of attorney is executed. ARS § 36-3221.
A living will is a directive that allows a person to communicate the types of life-saving and life-sustaining efforts that the person would like taken on his/her behalf. Often, a person empowered under a health care power of attorney is required to respect the preferences set forth in a living will.
An Arizona living will can either exist by itself or as part of a health care power of attorney. It specifies those end-of-life actions a person would and would not like taken on his/her behalf. The situations and actions listed in a living will may range from very general to very specific.
If a living will is part of a health care power of attorney, it need only be in writing and need not comply with additional execution formalities. If it is not part of a health care power of attorney, however, its execution must satisfy the same execution requirements as a health care power of attorney. ARS § 36-3261.
The Arizona statutes are somewhat unclear as to whether a health care provider can act independently under a living will that only exists as part of a health care power of attorney, or whether the attorney-in-fact must issue the directives set forth therein. Therefore, to avoid this possible limitation, we suggest that a living will be executed as a separate document, even if its terms are contained in a health care power of attorney.
Out of State Validity
A health care directive prepared before September 30, 1992, or prepared in another state, district or territory of the United States is valid in Ariozna if it was valid in the place where and at the time when it was adopted and only to the extent that it does not conflict with the criminal laws of Arizona. ARS § 36-3208.
If there are conflicts among the provisions of valid health care directives, the most recent directive is deemed to represent the wishes of the patient. ARS § 36-3209.
Direct Assets at Death
There are various legal methods through which a person can plan how his/her assets will be handled after his/her death, including but not limited to:
- Revocable living trust;
- Joint tenancy;
- Beneficiary deed; and
- Beneficiary designation.
Perhaps the most basic form of estate planning in Arizona, a will allows a person to specify how his/her assets will be distributed upon his/her death. A will must be admitted to probate in either an informal, formal, or supervised proceeding. Probate is the process by which a will is validated, creditors of the decedent are paid, and distributions are made according to the terms of the will.
In Arizona, a person can also nominate guardians for his/her children via a will. Although, courts are not required to respect such nominations, they often do.
Arizona law provides for three types of wills: (1) attested wills, (2) self-proved wills, and (3) holographic wills. In any case, however, the person making the will — called a testator — must be at least eighteen (18) years of age and be of sound mind. The requirements for all three types of wills are set forth in A.R.S. § 14-2501, et seq.
Revocable "Living" Trust
In order to avoid the probate process, some people choose to transfer ownership of their assets to revocable living trusts. Unlike probate, no court appoint is necessary for the person named as a successor trustee to oversee the distribution and/or management of trust assets.
If, however, all of a person's assets, which would otherwise be subject to probate are not transferred to the trust and exceed the any exemptions for small estates, probate may be necessary. This is especially common among so-called "snowbirds" who are residents of another state during the spring, summer, and fall, but live in Arizona during the winter and do not title their Arizona residences to their revocable living trusts.
Various types of property —for example, real property and bank accounts — are owned in joint tenancy, also known as joint tenancy with right of survivorship. Under Arizona law, when one joint tenant dies, the decedent tenant’s interest in the property is automatically transferred to any other joint tenants on a pro-rata basis by operation of law. This automatic transfer cannot be stopped or avoided by the provisions of a will or revocable "living" trust.
Another way to avoid probate is via a type of deed that automatically becomes effective upon a person's death, i.e. a beneficiary deed. In Arizona, beneficiary deeds are expressly made possible via statute, specifically A.R.S. § 33-405.
Assets such a life insurance and federally-governed retirement plans such as a 401(k), IRA, or profit sharing plan are not subject to probate, unless payable to the decedent’s estate; rather, such assets include a beneficiary designation, which sets forth the particular beneficiary or beneficiaries of the assets.
Estate Planning Glossary
Probate – Court-monitored proceeding during which a decedent’s will is validated (if any), the decedent’s assets are gathered, the decedent’s creditors are paid, and the decedent’s remaining assets are distributed – either pursuant to the terms of the will or the intestacy statute – to the decedent’s heirs or beneficiaries, as the case may be.
Testator – In Arizona, the person who makes a will is called a testator. Further, after making a will a person is said to be “testate”.
Estate or Probate Estate – When a person dies, a fictional thing called an “estate” automatically comes into being. A decedent’s estate, owns all of the decedent’s property that isn’t titled in joint tenancy, as community property with right of survivorship, or otherwise not titled in the decedent’s name.
Personal Representative – In Arizona, the term “personal representative” is to describe the person who is appointed by the probate court to administer a decedent’s estate, as opposed to the term “executor”, which is used in many jurisdictions.
Heir – Person(s) who inherit from a decedent who does not have a valid will at the time of death pursuant to a state’s intestacy statute.
Beneficiary – Person(s) who have interests in a decedent’s estate pursuant to a valid will or person(s) who are otherwise benefit from a revocable “living” trust, pursuant to a beneficiary designation, or similar transfer that is outside of probate.
Intestacy – When a person dies without a valid will that person is said to be “intestate” and the distribution of that person’s probate estate is governed to a particular state’s intestacy statute.
This brief overview of some important considerations associated with estate planning in Arizona is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.
Steve Cook is a Mesa, Arizona probate attorney at Cook & Cook. Although his office is located in Mesa, Arizona, he represents clients throughout the Phoenix, Arizona Metropolitan area including the following east valley cities: Scottsdale, Paradise Valley, Tempe, Chandler, & Gilbert.