One of the misnomers of estate planning is that it is for older generations with enough money to care about where it goes. Accordingly, young people, particularly newlyweds and couples with young children tend to discount the value of estate planning. However, this article seeks to illustrate the reasons why advanced planning is relevant to a younger demographic.
Who Gets the Children?
One of the primary reasons for a young family to execute estate planning documents (irrespective of whether Last Wills or a Revocable Trust are the centerpieces of the estate plan) is to designate who will be the guardian of their children’s person (i.e. who gets to determine where the child will live, go to school, etc.) and who will be the conservator of the child estate (i.e. who will control the child’s money/inheritance, if any) — this is often the same person.
Ironically, this is often one of the most challenging decisions couples are faced with in the estate planning process. Why? Perhaps the couple doesn’t have reliable family members/friends they can trust, they are concerned about the financial acumen of a potential guardian, or they are merely suffering from analysis paralysis.
However, without a designation of your chosen guardians via elections made in your estate plan, the choice will be made for you by the courts according to Arizona state statute, namely Arizona Revised Statutes § 14-3203. This result (i.e., state law making decisions for you) will be a common theme throughout this article.
Who Gets Your Assets?
There is a classic joke among lawyers that is the response to nearly any legal question posed: “it depends.” It depends because it boils down to how your assets are titled. For instance:
Is your home (if you own) held by one spouse individually, as tenants in common, as joint tenants with right of survivorship, or as community property with right of survivorship? Each of these ownership types has different default rules for who will inherit the estate.
How are your retirement plans or life insurance policies beneficiary designated, if at all? Commonly people will nominate a spouse as primary beneficiary (they will receive 100% upon the death of the owner), with children designated equally as contingent beneficiaries.
However, having minor children named as beneficiaries without the presence of an estate plan (either through a Revocable Trust or a Will giving the executor the power to hold the assets until adulthood, or the ability to establish a Uniform Transfer to Minors (“UTMA”) account) will require an executor to establish a conservatorship with the court to hold the assets until the child reaches adulthood). If this sounds expensive, it is — it is an ongoing court-supervised proceeding that will last through the child’s minority.
How are your bank accounts titled? If they are held in one spouse’s individual name, will these accounts be easily accessible by a surviving spouse?
In all cases, in the absence of documents electing otherwise, various Arizona state laws will govern the default distribution of your assets.
Who Has the Power to Deal with Your Health Care or Financial Decisions in Case of Incapacity?
One of the most underrated, yet most potent, documents estate planners draft are powers of attorney (for both Health Care and Financial matters). Rather than dealing with what will happen after your death, these documents deal with the much more statistically likely scenario of being temporarily or permanently incapacitated due to an accident or illness while you are still living.
A “Durable” Power of Attorney allows you to appoint an agent who may act on your behalf to manage your financial affairs in case of incapacity (or inability to make informed decisions). It is “durable” because the power you grant to your agent to take care of these affairs survives your transition from having capacity (i.e., being able to handle your own financial affairs) to incapacity (being unable to legally deal with your financial or legal affairs). This document may be used by an agent to access bank funds or credit to pay for mortgages, car payments, medical bills, etc. In the absence of a Durable Power of Attorney, a conservatorship is possibly necessarily depending on the length of a client’s incapacity.
Conversely, a Health Care Power of Attorney allows you to appoint an agent to make health care decisions on your behalf when you are incapable of communicating or providing consent due to injury or illness (i.e., post-surgery care, trauma, terminal illness, etc.) Again, in the absence of documents naming your chosen agents for health care, Arizona state law will govern who gets to make these decisions (A.R.S. § 36-3231).
Is It Worth the Expense?
Attorneys frequently deal with the “sticker shock” associated with the cost of establishing a comprehensive estate plan. While few would disagree that it is indeed expensive, the alternative is far worse:
For example, a client without a will, dying intestate with over $75,000 of personal property assets (cars, household goods, jewelry, etc.) or $100,000 of equity in their home will require a probate; the filing fee alone in Maricopa County is $279, meanwhile, the preparation of the required documents (which are tedious and voluminous) and affiliated efforts to administer the estate by a qualified attorney can add up to several thousand dollars.
This math doesn’t even take into account any efforts needed to establish a guardianship or conservatorship for a minor which, again, can be very costly. So, while it is right to acknowledge the expense of “doing it right,” it is my experience that investing in a well designed estate plan (along with a lifelong dedication to funding said trust) is substantially less expensive than the alternative of doing nothing.
Now — you may say: “I’m dead; what do I care?” The short answer is that if you care about your family or trusted friends who will be left to deal with the issues described above, then this should motivate you. These tasks can be a substantial burden even for financially savvy individuals.
This is also not just my opinion; I believe any attorney, accountant, financial or insurance advisor would agree.
Conclusion
Estate Planning is not simply a tool for older generations; it has significance and relevance to most, if not all people, but particularly those with young families. You merely need to look at the alternatives discussed above to see the value.
At the end of the day, the choice is between (i) doing nothing and hoping for the best, or (ii) proactively working through the process of designing a plan to meet your family’s needs when you are not there to do so yourself.
Moreover, while it is easy to view estate planning as simply getting an expensive stack of paper in a pretty binder, the value of planning is absolutely the experience of the process — the process of getting to know you, your assets, your hopes, aspirations, fears, etc. — and then developing a plan to empower your future and make life easier on your loved ones.
If you have any questions or would like to speak further about any of the content contained in this article, please feel free to contact me at (480) 930-5859.