Chapter 1 Estate Planning

Most Important Information in this Book

The single most important reason to adopt a Trust is illustrated in Chapter 2, Primary Reason to Have a Trust – Protect Your Family from the Ultimate Nightmare. If you do not have time to read this book, I urge you to read Chapter 2. If your spouse is the primary breadwinner in your family, please read Chapter 2 because it explains how assets inherited by you from your spouse and insurance proceeds on your spouse’s life can be asset protected from your creditors if your spouse were to die. This important reason to create a trust applies to everybody regardless of the size of an estate.

Purpose of this Book

The purpose of this book is to help you learn about Wills, trusts and estate planning and why you must sign a Will, a trust, a living will, healthcare power of attorney, financial power of attorney and the other important documents that are part of a comprehensive estate plan. Estate planning involves a lot of different issues and is quite confusing to most people. One of the biggest reasons people fail to adopt an estate plan is because when there is too much to learn people have a tendency to do nothing. If you spend an hour to read this book you will understand Wills, trusts and estate planning and realize why you need to sign a Will, a trust and the ancillary estate planning documents to protect your most valuable asset – your family – in the event of your death or incapacity.

Definition of Estate Planning

Estate planning is taking steps while you are able that will allow you to: (i) control property while alive, (ii) take care of yourself and your loved ones if you and/or your spouse (if married) become incapacitated, (iii) give what you have to who you want the way you want and when you want, and (iv) save every last tax dollar, professional fee and court cost legally possible.

Where You can Go to Learn More about Wills & Trusts

This book is a good summary and explanation of Wills, trusts and estate planning. You can read this book in an hour. Another great resource to learn about Wills, Trusts and estate planning for Arizona residents is my website located at:

www.arizona-wills.com

The Primary Estate Planning Documents

An estate plan is not just a Will or a trust. It deals with life situations as well as post death situations. The following is a list of several other important estate planning documents that every adult should have. Your loved ones pay the price of not having these documents when they are needed.

• Trust: This is the foundation of an estate plan and the most important document. It avoids probate, specifies who will inherit your assets after your death and can provide life-time asset protection for your heirs. Read Chapter 7 Trusts Explained.

• Will: This a document that specifies who will inherit your assets after your death, but it requires an expensive time-consuming and public court proceeding called a probate to transfer assets that remain in your name after death to your heirs. If you have a trust, the Will does not distribute your assets to your heirs, but instead states that all of your probate assets go into the trust that contains your inheritance plan. In Arizona, the Will is the document a parent needs to sign to tell the court who the parent wants to raise the child if the parent were to die when any of his or her children are minors. Read Chapter 6 Ten Reasons to Sign a Will.

• Healthcare Power of Attorney: In this document you name the people who you want to make healthcare decisions for you if you cannot. It prevents doctors and hospitals from asking for an expensive court order that instructs the healthcare providers as to what care to give or not give to you when family members disagree on treatment and you are not able to communicate your wishes. It avoids the Terri Schiavo situation (her parents and ex-spouse disagreed for years over Terri’s treatment). They frequently wasted money on legal fees getting a court order.

• HIPAA Authorization: This document notifies healthcare providers that the people you name as the holders of your healthcare power of attorney are authorized to get information about you and your care. A federal law called HIPAA prevents healthcare providers from giving out patient information without the consent of the patient. Without this document your family may have to file a lawsuit to get a court to issue an order to the healthcare provider to disclose your patient information.

• Living Will: This document contains your instructions to the hospital and doctors that you do not want to be kept alive by machines if you cannot communicate and are in a brain dead or terminal condition. It avoids another Terri Schiavo situation (her parents and ex-spouse disagreed at the end of Terri’s life on whether to pull the plug on the machines). The parents and ex-spouse litigated this issue and it went all the way to the U.S. Court of Appeals where the court ruled that the doctors should pull the plug.

The Federal Estate Tax Exemption Amount

This book refers frequently to the federal estate tax exemption amount. The term is a dollar amount that is the dividing line between a non-taxable estate and a taxable estate. The bad news is that the U.S. has a federal tax called the estate tax. The good news is that the estate tax applies to very few U.S. citizens.  This tax applies only to the estates of people who die with an estate value (asset value minus debt) that exceeds the federal estate tax exemption amount in the year of death. When a deceased person’s estate is taxable, the rate is 40%.

The federal estate tax exemption amount depends on the year in which a person dies. The exemption amount for people dying in 2024 - 2025 is $13,610,000 adjusted for inflation.  Unless Congress changes the estate tax law, the exemption amount after 2025 goes down to $5,490,000 adjusted for inflation.

Warning: If the value of your estate (not including the value of your spouse’s estate if you are married) exceeds the exemption amount you should adopt an estate plan with a trust that includes estate tax savings provisions and take other action to reduce the estate tax that will be paid by your loved ones after your death. There are a number of things you can do that will reduce the value of your estate.

Note:  Whenever this book refers to the federal estate tax exemption amount that amount is determined by the year in which a person dies and the reader should adjust the number displayed in this book to the applicable amount that applies to the year in which a person dies.