Mark A. Bregman, Estates and Trusts Lawyer


IRS Issues Fact Sheets Describing How to Avoid Identity Theft

With the recent news that TurboTax will no longer allow electronic filing of state tax returns because of the high incidence of fraud stemming from identity fraud, you may find the 2 fact sheets released by the IRS on January 26, 2015 interesting.  Click on the following links to read the fact sheets:

FS #1 and FS #2 -Identity-Theft-Information-for-Taxpayers-and-Victims

or go to site for identity theft.

Heeding the warnings and taking the precautions described by the service may help you avoid the tragedy and inconvenience of a stolen identity

If you want further information, please contact us for help.


Posted in Uncategorized on February 6th, 2015 · Comments Off on IRS Issues Fact Sheets Describing How to Avoid Identity Theft

Inherited IRAs May be Fair Game for Creditors

In Clark v. Rameker, the United States Supreme Court recently (June 2014) decided that inherited IRAs were not entitled to bankruptcy protection under the federal bankruptcy code.

Although inherited IRAs continue to remain protected in bankruptcy under the Arizona exemption laws, many descendants inheriting IRAs from Arizona decedents may live outside Arizona and their inherited IRAs may be available to the inheritor’s creditors and bankruptcy trustee.  For most people this is an undesirable result.

There is a simple and affordable solution to prevent this from happening.  Using an IRA inheritor’s trust, a specially designed trust is named the beneficiary of the IRA.  If properly designed, the IRA beneficiary will retain all the “stretchout” benefits available to an individual beneficiary with the added benefit that the IRA benefits will not be subject to the claims of the inheritor’s creditors.

The IRA trust was first approved by the IRS in 2005 and is a tried and tested strategy for controlling benefits, stretching out minimum required distributions, and providing protection for creditors.

To find out more about this important strategy, contact me at or call (480)945-9131.

Posted in Uncategorized on June 25th, 2014 · Comments Off on Inherited IRAs May be Fair Game for Creditors

Trouble Ahead for Single Member LLCs (SMLLCs)?

A primary reason for forming an LLC is to protect a client’s other assets from liabilities arising from the business of the LLC.  That protection may now be at risk.

For some time, practitioners have been alert to the limitations in some states of the protection afforded to assets held in a SMLLC even when the statute, as in Arizona, provided a charging order as the sole and exclusive remedy, but now there is a new concern – that even clients that meet state law may be at risk under alter ego liability theories.

I’m taking a break this week from the explanations of basic estate planning to discuss an important recent case which imposes troublesome limitations on the protection afforded by a single member LLC.

The Colorado appellate court recently used an alter ego analysis to erode the protection an LLC provides to its members.  In Martin v. Freeman, the court employed a 3 prong analysis and found that a single member of an LLC was liable for the debts of his LLC because (1) the LLC was the alter ego of its member, (2) that the entity was used to defeat a rightful claim, and (3) an equitable result was obtained by ignoring the entity.  The court considered a variety of fact specific elements, including insider control, thin capitalization, the entity was a mere shell, legal formalities were disregarded, and commingling of funds, all relatively common occurrences in the operation of Arizona LLCs.  The court’s analysis twisted relative innocent facts to reach the conclusion that the validly formed and operated LLC provided no protection for its single member.  There was a spirited dissent which drew a bright line on the lengths to which the majority was willing to go to express its dislike for the notion that clients can avoid potential liability by merely forming an LLC in compliance with existing statutes.

The case makes clear that clients must supply something much more than a shell of an LLC.  Observation of certain elements derived from sometimes obtuse rulings from other jurisdictions may be important in cementing the client’s protection.  Merely observing the letter of the statute may not be enough.

Call me for a copy of my newly revised LLC operations manual which describes additional steps which may be important if you are to avoid personal liability when your LLC is sued, to obtain a more robust operating agreement, or form a new LLC.  Be careful out there, it is a dangerous world.

Posted in Uncategorized on February 13th, 2012 · Comments Off on Trouble Ahead for Single Member LLCs (SMLLCs)?

Estate Tax Reform is Coming

We don’t know when, but we do know estate and gift tax reform is coming sometimes in the next 13 months.  There are almost as many plans as there are Senators, but one of the most comprehensive and regressive is The “Sensible Estate Tax Act of 2011” introduced November 17, 2011 by Congressman Jim McDermott (D- WA) which contains the following provisions.

Estate Tax Exclusion Amount Would be Reduced to $1,000,000 With Top Tax Rate of 55%

Under the bill, the estate tax exclusion amount would be reduced to $1 million for decedents dying after December 31, 2011.  The $1 million exclusion amount would be indexed for inflation from 2000 for decedents dying after 2012. The top estate tax rate would be 55%, and the graduated amounts subject to the rate schedule would also be indexed for inflation. The bill includes provisions designed to coordinate with the gift tax to reflect the decrease in the applicable credit amount.

 “Portability” Would be Made Permanent

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Act”) allows portability of estate and gift tax exemptions between spouses.  However, portability under the 2010 Act applies only through December 31, 2012.

Rules on Valuation Discounts and Minority Interest Discounts Would be Modified
The proposal includes valuation rules for certain transfers of nonbusiness assets (defined as an asset which is not used in the active conduct of 1 or more trades or businesses), including:

in the case of the transfer of an interest in an entity which is not actively traded, no valuation discount would be allowed with respect to “nonbusiness assets”; and

in the case of the transfer of an interest in an entity which is not actively traded, no discount would be allowed by reason of the fact that the transferee does not have control of the entity if the transferee and the transferee’s family members have control of the entity.

There would be other changes to the rules for GRATs and limitations on the limits of GST exemptions.

While no one expects that bill to pass, it is certain that elements of it will be part of the discussion and the only thing that is certain is that the new rules will be geared toward capturing some of the enormous wealth transfers expected to take place as baby boomers age and die.

Anyone with an estate greater than a million dollars may be subject to estate taxes unless proper planning is implemented.

I have a formal 14 step process designed to protect my clients’ estates and their families from estate taxes, creditors, spouses, and spendthrift habits.  We can implement this process for you, your loved ones, or your friends.  Call me if you want to find out how.

Health Care Powers of Attorney in a Nutshell

Because emergency documents are prepared and intended to be used prospectively, it is crucial that each document reflect your intention, be properly signed and attested, and written in clear language that will be understood by the third party provider to whom it is presented for the purpose of inducing that third party provider to act in accordance with your intentions.

Authorizing someone to make health care related and medical decisions for you is an important decision.  Most estate planners will provide their clients health care powers of attorneys and living wills when drafting a Will or a trust, but the importance of the decision is often lost in the tsunami of other decisions clients must make when creating an estate plan.  Recognize the importance of including health care, medical emergency, and end of life planning into your overall plan to lead a purposeful life.

In my opinion, focusing on WHO will act is most important.  HOW your Agent will act is also important, but except in unique circumstances, it more important to impart your personal philosophy of how you would act, rather than trying to master a list of different possibilities and making specific choices about each.  I have a fanatical devotion about paying attention to the big picture borne from a belief that if you have developed an all-inclusive outlook, your Agent will make the decision that best suits your intentions.

A good plan is not about documents, but about philosophy and intentions.  The documents should assure that the plan is implemented as intended.

All documents that delegate authority to another should include a specific provision allowing the Agent to act as the maker’s “personal representative” under the federal HIPAA rules.

Health care planning may include the following documents –

A Health Care Power of Attorney which appoints the person or persons to make health care decisions for you if you are not able to make them for yourself.  In addition to naming the person or persons to act, the document may indicate what actions are to be taken in specific circumstances.  Focusing on specific circumstances may be useful if there is a great likelihood that the specific circumstance will occur, but otherwise, I believe it is better to focus on having a plan prescribes your philosophy of how decisions ought to be made.

In Arizona, a Medical Power of Attorney has additional requirements that consider civil liberties if the maker is to be confined as part of the treatment plan.  Those precautions may be included in the health care power of attorney or a different document.

A Living Will does not appoint an Agent but rather declares what type of treatment you want in the event of your imminent death if you are in a persistent or permanent vegetative state, or you have a terminal illness, or incurable disease.  Most often the living will declares that you do not want to artificially prolong your life or to receive life sustaining treatment, beyond comfort care, that serves only to prolong the moment of your death.  Whether one of those conditions exists is made as you indicate, usually by one or two physicians that have examined you.

Courtesy of a colleague, I have collected living wills that have been used by clients of different religious persuasions which incorporate tenets of their faith into the decision making process.

A Living Will is not to be confused with a “do not resuscitate” or a prehospital DNR designation which in Arizona must be reviewed with and signed by your physician, be on orange paper, in letter or wallet size and plainly visible to emergency medical personnel.  With the proper form, you may also wear a bracelet that meets the requirements of ARS §36-3251.

Arizona has statutory forms for each of these documents and you can find the forms on the Attorney General’s website along with a 10 minute video that explains their use.  The Arizona Secretary of State provides a registry where you can maintain your current documents to be retrieved when needed. [The information in this paragraph is provided as a public service and should not be considered legal advice nor imply that I endorse substituting generic internet documents in place of sound legal advice and custom prepared documents tailored to your individual needs]

And finally, Arizona residents may designate another person as the temporary guardian for their minor children or wards under a guardianship for up to 6 months at a time.

The “magic” of any of these important documents is that they accurately what you want, who you want to act for you if you are unable to act for yourself, and be written in plain enough language that the third party provider will understand what it is and act in accordance with your intentions.

I would be honored to have the opportunity to discuss your emergency planning intentions and your estate planning needs.  Please call and make an appointment to see me.

Posted in Health Care, Uncategorized on November 21st, 2011 · Comments Off on Health Care Powers of Attorney in a Nutshell

Mark Bregman selected as one of Arizona Finest Lawyers.

View the AFL Letter

I have recently received an important accolade. I have been selected as one of Arizona Finest Lawyers, a peer reviewed validation that strives to identify the top 10% of Arizona lawyers. This was an unsolicited and no-fee accolade bestowed on me without any action by me. The validating organization is a group of Arizona’s most impressive lawyers.

I was also recently notified by Martindale-Hubbell that I have been peer reviewed by that organization, America’s oldest and foremost attorney rating service, and once again qualified to receive their highest rating A-V which includes a designation as a preeminent lawyer. I have been A-V rated by Martindale Hubbell for many years.

I will be pleased to assist you with your estate planning, estate tax, gifting, probate, or trust administration issues.

Posted in Uncategorized on July 18th, 2011 · Comments Off on Mark Bregman selected as one of Arizona Finest Lawyers.

Why “Avoiding Probate” Does Not Mean “Eliminating Attorneys or Their Fees”

Many prospects and their heirs have been inundated with so much false and half true information that they believe the creation of a living trust not only avoids a probate proceeding (going to court), but also eliminates the need to visit or pay an attorney to help settle the decedent’s estate.

An attorney is still necessary to help settle the trust as described below. The effective use of a fully funded revocable living trust should reduce the amount of work and accordingly the costs incurred, but here is a partial list of what the attorney does in every case with or without a probate proceeding.

  1. Counsels the successor trustee as to his or her duties and obligations, including a comprehensive review of the pertinent provisions of the trust instrument.
  2. Explains the necessary steps to be taken to efficiently administer the assets, including the obligations with respect to specific bequests to individuals and gifts to charities.
  3. Directs the preparation of an inventory and explains the practical steps to be taken insofar as disposing of items of dubious value and preserving records.
  4. Coordinates who among family members, friends, and professional advisors will perform which tasks in the administration of the trust estate.
  5. Answers those questions that inevitably arise.
  6. After the death of a spouse, assists the surviving spouse, by
    1. Explaining that the trust estate has been designed to permit the survivors to spend a reasonable amount of time grieving before jumping into the business of settling the trust administration;
    2. Comforting the survivor that almost everyone that tries to rush the survivors into making decisions is wrong and probably not concerned with the best interests of the survivor;
    3. Explaining why death certificates may be needed and why it is better to get too many the first time rather than too few;
    4. Being available as an unbiased advisor to give competent advice about how and when to proceed;
    5. Helping determine if an estate tax return is necessary or desirable;
    6. Determining what assets must be appraised and what type of appraisal will be necessary in light of the size and nature of the estate;
    7. Establishing the AB or ABC trust shares, including;
    8. Obtaining new tax payer identification numbers for the trust;
    9. Explaining the advantages and disadvantages of putting specific assets into the A or B share;
    10. Analyzing the nature of the trust assets and explaining why some assets belong on one side of the equation or the other;
    11. Making sure that the right advisors are performing the necessary tasks to meet the successor trustees obligations in a timely manner;
    12. Introducing the surviving spouse to a trust officer if appropriate;
    13. Confirming that all assets had been properly retitled prior to the decedent’s death so that no probate is necessary or initiate one economically if needed for any reason;
    14. Retitling assets where necessary;
    15. Notifying custodians and the social security administration;
    16. Assisting the client in setting up new accounts where appropriate and obtaining federal employer identification numbers for the new irrevocable trusts established as a matter of law at the death of the decedent;
    17. Helping the survivors determine if their intended tax and financial advisors have sufficient knowledge and experience to handle the unique issues that are likely to arise;
    18. Explaining what tax returns will be due and help the surviving spouse obtain competent tax advice and tax return preparation;
    19. Explaining “step up” in basis to help avoid costly inadvertent tax consequences;
    20. Explaining how and why the IRA spousal rollover works and helping to assure that the transfer is done correctly to avoid immediate income taxation of the entire retirement account balance;
    21. Reviewing with the survivor the meaning of the multiple buckets of assets and why each bucket has different characteristics that must be carefully considered on an ongoing basis;
    22. Discuss possible disclaimer strategies;
    23. Reviewing and updating if necessary financial and health care powers of attorney;
    24. Insuring that the survivor receives adequate and competent counsel concerning the survivor’s estate;
    25. Making sure the work actually occurs in a timely fashion to avoid problems later on;
    26. Determining if the experience with the first trust settlement gives rise to any suggestions to improve the administration of the ongoing trust and recommend changes to simplify the process for the next set of survivors;
    27. Reviewing the benefits that are available to the surviving spouse and the limitations that must be observed to preserve those benefits on both the federal and state levels;
  7. After the death of a surviving spouse or single decedent all of the above must be repeated and the affairs of the decedent wound up.

The survivors and successors can choose to use any attorney with whom they are comfortable. Although I would certainly like to be that attorney, I recognize that my relationship is usually with the decedent and the survivors and successors may already have a relationship with another attorney. I just urge caution because not all attorneys may be intimately familiar with the trust documents, the decedent’s intentions, or the process. Family attorneys, unless well versed in probate and trust practice may be better utilized by giving a recommendation with whom the survivors are more comfortable. This also applies to accountants and financial advisors. Not all accountants who prepare individual tax returns or monthly business statements also have experience with the intricacies of trust accounting rules and the preparation of the necessary fiduciary returns. Although the family should continue to use those advisors with whom they are most comfortable, most drastic mistakes are made by well meaning family lawyers or accountants who fail to comprehend the complexity of representing trust estates.

Remember, in Arizona “avoiding probate” is not a large concern. An uncontested probate process will not prolong the settlement of the estate nor will be very costly. It should add no more than $3,000.00 to the trust settlement charges you will already incur with or without a probate case. Also remember, the actually cost of trust settlement depends on many factors, including the complexity of the assets ownership, the value of the assets, and the nature of the assets. I will be happy to frankly discuss the current charges at a mutually convenient time.

Finally, a not so brief comment on alternatives to trusts in avoiding probates in Arizona. Although not always desirable, it is possible with estates of almost any size to avoid both a probate proceeding and complex trust settlement procedures using a combination of joint accounts, POD accounts, TOD accounts, rights of survivorship, beneficiary designations, and beneficiary deeds. While I commend the use of such streamlined procedures when appropriate, there remains a great deal of misinformation among trust and bank officers, escrow officers, and other professionals about when and how to effectively use each of these tools alone or in conjunction with one another. Misuse of these tools can cause serious adverse income and estate tax consequences, distributions to unintended beneficiaries, and exposure of a vulnerable adult to their children’s creditors or predatory practices. There are really safe, economical, and effective methods to accomplish almost any objective, but many more ways to misuse the methods. Exposing the assets acquired over the course of a lifetime is an extreme and unwarranted risk to take on the mistaken belief that legal fees and lawyers are evils to be avoided at all costs. If you are the child of a surviving spouse or an elderly person in need of an economical and effective estate plan, please invest the time to find out how to do it properly. This is one area where an ounce of prevention can avoid several pounds of cure. I am always happy to explain and implement the least costly and most effective method of transferring your family’s wealth. Please don’t go it alone.

Posted in Uncategorized on October 19th, 2010 · Comments Off on Why “Avoiding Probate” Does Not Mean “Eliminating Attorneys or Their Fees”

What is and Why Write a Family Letter

Family Letters, sometimes called Family Mission Statements, Family Philosophy, or Ethical Wills, emphasize the non-financial values and family culture which clients believe are important enough to mention in a final statement to their descendants and loved ones.

The Family Letter can include anecdotes and stories that illustrate values that clients believe form an integral part of their family culture that they want to be remembered, but there is really no right way or particular form that the loving statement need take to be effective except that it should be a heartfelt statement of those values and ideas that are important to you and that you want to propagate among your descendants.

The Family Letter can be the most important document in your estate plan and sets the tone for the generations yet to come by explaining enough about the past to explain why you hold your values so dear. It can also be a reflection of those ideas and values you want most to be remembered for.

A suggested outline begins with a statement of those priorities and qualities you want each family member to assimilate into their lives and pass along to their children. It should include those values and ideals you hold dear and respect and may include such qualities as intellectual curiosity, education, spirituality, religion, charity, thoughtfulness, compassion, loyalty, friendship, honesty, frugality, physical fitness, pursuit of good health through exercise and nutrition, a sense of humor, relationships with others, excellent effort, understanding, community pride, participation in community endeavours, and overall excellence.

It may include an explanation of why you chose a certain path in life, the things you value in your spouse, business relations, social encounters, travel, community and culture. You might describe your most admired characters from history or your personal life and the reasons why you admire them. You might explain activities that you enjoy and what you gained from pursuing them as well as your favorite books and authors, movies, plays, or music. For example, I might explain that I love baseball for its unparallel combination of physical prowess and honing of intellectual and physical skills in a never repeat variation of actions and how I believe understanding those relationships helps me understand the complex nature of coordinating the physical with the intellectual both inside of me and the need to cooperate with others to achieve success. You could also explore negative experiences and what you learned from them. Explaining how you overcame adversity in your business, personal, financial or health can be a valuable lesson for others. The path not chosen may have as many keys to understanding as the path taken.

The letter may encourage your descendants to pursue their talents and abilities and to build their own self esteem by personal example. You might explain what you believe is important about finding your niche in the world and pursuing a career or avocation that you find rewarding and fulfilling, including the importance of stopping along the way to “smell the roses.”

You might describe those characteristics you wish you had more of and those you wish you could have avoided. You can teach lessons of thrift, the importance of saving, patience, and perseverance. You can explain how you understood the world better as you matured and how life’s experiences may have replaced the arrogance of youth. You may speak directly to specific issues in your family or generalize. You can give your descendants permission to make mistakes so long as they learn from them to build their character. You can speak from examples or tell stories.

You might describe experiences from your life that made you happy or sad, including your relationships with your children, spouses, and others. Anything that might be considered a life’s lesson is appropriate for your written legacy.

You may choose to express the role that spirituality or religion played in your life and why.

You can exhort your descendants to reach for the stars or to strive for personal tranquillity.

You may go through several drafts of such a letter and many of my clients find the letter helps focus them on how they want to spend some of the rest of their own lives. It is a great opportunity for reflection that cannot be measured in terms of dollars and cents or minutes and hours.

We can spend some time together discussing the contents of your letter and I can show you some samples of letters written by my clients in the past, including some I have written for them based on my extensive conversations during the planning process. I no longer write for my clients because I have learned that the experience means much more if the clients take the time to do it themselves, but I enjoy sharing my observations acquired during the time we have gotten to know each other as a creative jump start for your journey. It is a journey more than a single event and the letter should be frequently updated. As we build a relationship together, so will your exploration of your inner self become a most valuable contribution to the happiness and well being of your descendants. The more you partake in the experience, the more meaning it will have for you and your family. You might want to think of it as a written record of your hopes, dreams, and aspirations for your family. I hope it will inspire you to new heights during your lifetime, maybe encourage you to try that experience you missed, but most of all, it will tell future generations who you were and what made you the unique and special individual I know you to be.

Posted in Uncategorized on October 19th, 2010 · Comments Off on What is and Why Write a Family Letter

What Is and Why Use a Unitrust?

Conventional wisdom concerning distributions from trusts involving an income beneficiary whose interests differ from the remainder beneficiaries (“the remaindermen”) begin with a common model that says one beneficiary (usually a spouse from a second marriage) gets the income from the trust during her lifetime (“lifetime beneficiary”)and upon her death, the remaining principal passes to the remaindermen, usually the first decedent’s children or grandchildren.

This model has obvious fatal flaws from the start because the lifetime beneficiary is interested in maximizing the income during her lifetime and the remaindermen want the trust principal to grow. Most financial advisors recognize that these are mutually exclusive objectives that must be reconciled.

The manner in which the principal is invested is determined by the trustee subject to the trustee’s fiduciary duty to consider the needs of both the lifetime and the remainder beneficiaries. In a well written trust, the Trustmaker will include instructions detailing whether the Trustmaker intended the trustee to give greater consideration to the interests of the lifetime beneficiary or the interests of the remaindermen. But in many cases no instructions are included and the independent trustee is left to exercise its fiduciary duty in a neutral manner to provide a reasonable amount of income and provide for some growth to preserve the principal for the benefit of the remaindermen.

The Trustmaker also has the opportunity to control how the story unfolds by his or her selection of a trustee. If the income beneficiary is the trustee, the trustee must recognize the fiduciary duty to the remaindermen, but often income to the lifetime beneficiary becomes paramount. If a remainderman is the trustee, then growth usually is given more weight in the portfolio. But in every case, the natural conflict
remains between the competing interests. The discontent ranges from a general environment of unhappiness to full blown litigation over the manner in which the trustee exercises its fiduciary duty.

Now, there is a way for everybody to have their cake and eat it too! By using a “Unitrust,” sometimes called a “Total Return Trust,” everybody gains. A Unitrust provides that the income beneficiary instead of receiving the income from the trust, receives a set percentage of the net asset value (NAV) of the trust determined annually and usually paid monthly. A commonly used percentage is 4%. That accomplishes a number of important quantifiable objectives:

  1. 4% of the NAV will usually distribute more to the lifetime beneficiary than the income generated from a balanced portfolio (Balanced portfolios are desirable methods of insuring that the trustee is properly discharging its fiduciary duty to both the income and remainder beneficiaries).
  2. The trustee is freed from the artificial restraints of having to invest for income or growth and can follow both the “Prudent Investor Rule” and “Modern Portfolio Theory” which means that a diversified portfolio is created based on a predetermined appropriate risk tolerance which minimizes the risk of losing value to inflation or to market declines.
  3. Both the lifetime and remainder beneficiaries are hoping for the same result, an increased portfolio value, because the larger the growth, the greater the 4% payout becomes and the greater the remainder becomes.
  4. This is a really important concept in those cases where a lifetime beneficiary can be expected to live nine or more years than the decedent because over that length of time an interest oriented portfolio in times of modest inflation will see the value of the income decline dramatically, while the Unitrust naturally keeps up with inflation with increasing annual payouts while the principal also grows.

Of course, the important element for this strategy to succeed is that the money is invested by a proficient investment advisor. A good portfolio should be designed to have the minimum downward risk necessary to generate 3 to 4 points above the annual payout rate (A portfolio that returns 8% on a regular basis is good enough to pay 4% to the income beneficiary, up to 2% to the investment advisor and still retain 2% for growth). As with all investment portfolios, the beneficiaries must educate themselves enough to oversee the investment advisor’s choices.

It is difficult to find any detriments to this type of planning when you have beneficiaries with competing interests.

Posted in Uncategorized on October 19th, 2010 · Comments Off on What Is and Why Use a Unitrust?

Introduction to Arizona Estate Planning

Because many common estate planning issues are best handled using a trust based estate plan whose centerpiece is a revocable living trust, trust planning has become common place. Nevertheless, many people new to estate planning begin with commonly held misconceptions. Chief among those misconceptions are the beliefs that:

  • The decision to use a revocable living trust is based upon how much money you have;
  • Most estates will be subject to death taxes; and
  • Probate is an expensive process to be avoided above all else.

Under the constant bombardment of marketing pitches from seemingly impeccable sources, these fears are fed by myths which this article will dispel. This article attempts to explain the important issues in estate planning in a logical rather than fear based environment. I hope you find this information helpful.

A useful definition of estate planning is I want to control my assets while I am alive and well, and pass what I own, to whom I want, when I want, how I want, all at the lowest possible overall cost. Every part of this definition is incorporated into each plan, but the first step is to know what you are up against. The following topics are arranged in the order in which they will occur in the course of your life and death:

  1. Planning While Alive and Well;
  2. Planning for Incapacity;
  3. Planning for After the First Death; and
  4. Planning for Wealth Transfer to Descendant.
  5. Values Legacy

This article is intended to illuminate the questions you need to answer; it does not attempt to answer the questions for you. It is intended to provide you with a useful framework for your discussion with your own estate planner.

Topic One – Planning While Alive and Well

Most people want to retain control of their assets while they are alive and well and have a plan in place that will begin to operate efficiently in the event of incapacity or death. In most common situations, you will not want to make large gifts or create irrevocable trusts using assets that you want to control or consume during your life.

While irrevocable trusts may be a useful part of a large estate plan, they are most useful for assets such as life insurance that have little or no value to you while you are alive or for assets in excess of those you may want to consume during your lifetime.

Almost all plans will provide for what happens after you die. Lifetime documents, including a financial power of attorney, health care power of attorney, living will, and HIPAA designations, are used to provide you important lifetime protection.

The financial power of attorney can include many different provisions and you must choose the provisions that best meet your needs. The other documents are crucial for providing a safety net of care givers and expressing your intention should you face an end of life event.

The dilemma is that you must do the planning for incapacity or death while you are alive and well. You must provide clear instructions as to who is to control your assets when you are no longer able to do so and the circumstances that will trigger the succession pattern execution you have created.

You have a full toolbox to choose from to make this happen. The tool you choose will depend on several factors, including, but not necessarily limited to:

  • Your interpersonal relationships expressed by the character and closeness of your family members;
  • The abilities and trustworthiness of the people who could be responsible for you and your assets
  • Your personal characteristics, including emotional and physical makeup and your outlook on life developed by your lifetime experiences and education;
  • The source, nature and amount of your wealth; and
  • Your goals, objectives, and aspirations for yourself and your family.

Once you have analyzed the foregoing factors, you are ready to choose the tools that will help you comfortably achieve your goals.

Topic Two – Planning For Incapacity

This is perhaps the most important issue facing you. While it requires careful consideration, the actual documentation necessary can be quite simple.

Planning for incapacity requires inquiry into the following issues:

  1. What is your philosophy about end of life decisions?
  2. Who do you want to make health care decisions for you if you are unable to make them for yourself and to whom do you want medical information released? And
  3. Who do you want to control your assets and pay your bills if you are unable to do that for yourself, either temporarily or permanently?

Most people do not want their life prolonged after their medical team has made the determination that they will not recover from an incurable disease, fatal injury, irreversible coma, or permanent vegetative state. This is extremely important in this age of medical technology that can keep a patient with no discernible brain activity artificially functioning indefinitely. On the other hand, most people desire palliative care. This inquiry is not concerned with how to decide when that point occurs; the medical doctors will make that decision and inform your care givers, but rather what happens when that point has been reached. It is crucial that you have considered the possibility, explored your feelings, and made a clear and unambiguous written declaration to your loved ones and medical team. Only after you have made a careful and thorough examination of your feelings is it appropriate to sign a Living Will expressing your feelings to your loved ones and medical team.

The Living Will myth to dispel is that it is not a tool to be used by a caregiver to demand that medical treatment be withheld when there are viable treatment options that could lead to a medical recovery.

The second issue in this area is who should make medical decisions for you if you are unable to do so for yourself. There are a variety of situations where this decision could have an impact: an accident, a medical procedure requiring anesthesia, addictive behavior, dementia, or Alzheimer’s.

Arizona has enacted a statutory priority that will operate if you haven’t made a health care power of attorney. A spouse, an adult child, a parent, other relatives, and one who has assumed responsibility for the decisions can all be in the chain of command for health care decision making. Your Health Care Power of Attorney can change the statutory order or provide a priority among individuals in the same statutory priority. This is a particularly acute problem in domestic partner relationships because your domestic partner will have no priorities or rights except those provided by you in a properly created and executed writing. A Health Care Power of Attorney can also establish guidelines for the decision maker if you have a known preference.

For persons at risk for dementia, Alzheimer’s, or addictive behavior, a Mental Health Power of Attorney is an important document. The Mental Health Power of Attorney expressly authorizes your Agent to admit you to an appropriate facility that may include locking the doors or restraining the patient if your medical condition requires drastic solutions. Without the authorization you will still be admitted and restrained, but you will be released in 48 hours unless your caregiver has obtained an emergency court order to keep you admitted. This can be an expensive and time consuming procedure detracting from the Agent’s efforts to provide for you medically and emotionally.

The final question to address in incapacity issues is who will handle your financial affairs if you are unable to do so for yourself. Choosing the right people and their alternates is as important as choosing what powers you want to delegate and whether the powers are to be delegated using a financial power of attorney or a revocable living trust or a combination of the two. Important issues include whether the grant of authority is to be presently effective or only upon your incapacity, how incapacity is to be defined, and who will you choose to make the decisions for you. Considering these questions before meeting with an estate planning attorney will insure that you get the most value out of your meeting.

Topic Three – Planning for After the First Death

The intermediate step in any estate plan is what happens after the first death. If you have an estate taxable estate, even though no estate taxes are paid following the first death, your plan must provide prior to the first death what happens, or you will lose the right to use the first decedent’s Applicable Exclusion Amount (AEA). That amount is currently $2,000,000.00 and changes from time to time, but what has remained constant is the AB trust method of preserving the use of the AEA at the second death. The method requires that your will or trust directs that the first decedent’s assets up to the AEA be placed into a separate trust and remain identifiable until the second death. The terms and conditions under which that trust is administered may vary, but the constant is that the trust must contain certain magic words recognized by the Internal Revenue Service which nominally restricts access to the principal of the trust.

The plan can also provide more restrictions which allow a surviving spouse to use the assets if needed, but preserve the assets for the benefit of the descendants of the first decedent, if different than the surviving spouse’s descendants. There are many variations on the restrictions that can be utilized to give the surviving spouse and descendants the comfort and flexibility to the desired degree.

This intermediate planning is of course also crucial in same sex or domestic partnerships if the first decedent desires his or her money to be available to his or her partner, but eventually return to his or her own family.

Topic Four – Planning for Wealth Transfer to Descendants

The target of most estate planning is creating a method of passing your wealth to your descendants and others. Traditional planning is concerned with to whom do you give your assets. Modern planning also considers creative answers to how and when as well as the traditional questions.

“To whom” means you must identify who you want to receive what assets. Many testators want to benefit one or more charities and for them a decision must be made whether to leave an outright bequest or establish an ongoing fund from which one or more charities may benefit over time. Establishing a fund with a community foundation has gained popularity as a way to involve your children in the decision making process and may be more about teaching your descendants the value of becoming involved in philanthropy or community than about the actual charity. It also can satisfy the desire to continue giving to worthwhile organizations to fund general or specific programming rather than a one time gift.

“To Whom” also means identifying whether there are any family members or others you want to assist financially. In some circumstances, it is appropriate to include a plan provision that a certain portion of your assets are held and used for caring for an elderly parent or disabled child or sibling, with those reserved assets eventually passing to your descendants or ultimate beneficiaries upon the death of the assisted person.

“How” and “When” are relatively new concepts in estate planning. Wealth passing to the next generation has become a significant amount and the uncertainty of how your descendants will react to receiving the money has created a new layer of planning. Using trusts and independent trustees to protect assets and dole out money in a responsible manner is popular. To effectively utilize a trust and trustee means writing specific guidelines so that your descendants can enjoy the fruits of your success, but not waste the assets. This is often the most thought provoking and time consuming part of modern estate planning. Protecting descendants from creditors, predators, and their own spendthriftiness is not an easy matter nor is it a function solely of age or time. You can create a well conceived plan that will be satisfying to you and your descendants and leave a lasting legacy rather than descendants embittered by an archaic rule from the grave type of plan based on a rigid dated formulaic approach.

Topic Five – Values Legacy

Now that you’ve created a solid plan for how you are to be cared for to the end of your life and how to pass your wealth to your descendants, it is time to take care of what you most value. You can help instill a sense of community by establishing a fund for future giving, but you should also write a family letter or ethical will. This important document addressed to your loved ones should be an extension of the values and ideas you care about, but may not have always expressed to them. It is an opportunity to leave a written legacy describing the important lessons of your life to your descendants. It will be particularly welcome by the more remote generations you may not have known as well or as long as you would have liked. In this age where extended families are disappearing, it is an opportunity to inculcate your loved ones with those values you hold most dear. There is no form or legal requirement. Use your imagination, include pictures and stories of your life, to create a lasting account of your life. Explain the significance of family heirlooms and describe your own life changing events. The ethical will may last long after the money is gone!

A Final Word: Exploding the Myths of a Universal Estate Tax and the Horrors of Probate

You may be confused and concerned by the bombardment of advertising and marketing you receive telling you that you must have a trust to avoid estate taxes and avoid the horrors of probate. Even though I strongly believe in the use of trusts, I use them in my practice only as an appropriate tool. If your estate is under $2,000,000, you probably won’t be subject to estate taxes. If your estate is under $1,000,000, it is inconceivable at this time to believe that you will ever be subject to estate or death taxes if you live in Arizona. Politicians and trust mill hucksters alike use disinformation to make you afraid, but be strong – knowledge is power and unless you have an estate in excess of the Applicable Exclusion Amount (now $1,000,000) and a spouse, an inexpensive trust won’t help you. If you are single with wealth valued beyond the Applicable Exclusion Amount, an inexpensive trust won’t protect you from estate taxes and you will need a different approach to minimize estate taxes.

Probate is very expensive and time consuming in many states, particularly in New England, the Midwest, and California. In Arizona it is usually quick (most Arizona probate cases are substantially complete in two to three months and completed, but for a final tax return, within six months) and inexpensive (most probate cases can be completed for less than $5,000 in legal and accounting fees). Probate handles some situations better than alternative methods, particularly if there are more than two heirs sharing assets.

With the advent of ‘beneficiary deeds,” the availability of POD/TOD accounts, the prevalence of retirement accounts that use beneficiary designations to pass assets, and small estate affidavits (for estate valued at less than $50,000 of accounts and automobiles and not more than $75,000 of equity in real property determined using the assessed valuations less liens), you have multiple choices about how to organize modest estates without using a will or trust. Most estates use a combination of technique and the benefit of consulting with a knowledgeable attorney is that you can find out which of these methods or combination of methods is most desirable for you.

Estate planning is complicated and should be a personalized experience for everyone. Learn as much as you can and then meet with a qualified, knowledgeable, and experienced estate planner that answers your questions, explains your choices, and helps you design an outstanding estate plan.

About the Author

Mark Bregman has practiced law in Scottsdale, Arizona since 1979. He is a founding member of Wealthcounsel, LLC, a national organization dedicated to estate planning. He is a frequent lecturer on various estate planning, trust, probate, and IRA topics. Visit his website or contact him at (480) 945-1800.

Posted in Uncategorized on October 19th, 2010 · Comments Off on Introduction to Arizona Estate Planning