Every time of the year is a good time to think about estate planning. The end of a year is an especially good time to focus on this important activity. In this report, Darra Rayndon, a member of Clark Hill PLC, Scottsdale, Arizona, explains some things you should keep in mind, including a potential pitfall.
Rayndon says that everyone needs to establish and estate plan and understand how it will work, whether it is a will, a trust, or some combination of these. Part of that process is to review what is in place to make sure that it still reflects one’s life circumstances and wishes.
Estate tax may not be a problem for many people. Rayndon points out that the tax has an exemption amount—a sum that can pass free of estate tax. For 2016, the amount is $5,450,000 per person. In 2017, that amount will be $5,490,000. “That means that a married couple can give away . . . almost $11 million with there being any estate tax.” People whose estates will be less than the exemption amount can forget about federal estate tax.
Beneficiary designation can be an important issue, but even more important may be how one holds title to property. Rayndon explains that the way in which someone holds title to property will override any desire expressed in a will or trust. For example, it is common for a married couple to hold title to property as joint tenants with right of survivorship. Property that is held in this manner will pass automatically by operation of law to one joint tenant when the other joint tenant dies. Nothing in a will or trust can change that outcome.
There are also beneficiary designations that can be used to pass title to property in a way not subject to the terms of a will or trust. For example, a pay on death designation for a bank account or stock brokerage account will work automatically. Designating a beneficiary in a life insurance policy will pass the proceeds automatically to that person. The same thing may apply to annuities, IRAs, pension plans, and similar kinds of assets. Some states (Arizona is one) allow a beneficiary deed for real property that will pass title to real estate without regard to what a will might say.
Rayndon illustrates the importance of these designations by recounting her counseling with family distraught after the death of their father. He had promised the three adult children that he was leaving his share of the estate to them and not to his wife, who was not their mother. She was well taken care of, he had told the children. As it turned out, the children got nothing because their father had held title to all his property as a joint tenant with right of survivorship with his wife. When he died, she sold all the property and kept the proceeds. “His will was truly worthless.”
Darra L. Rayndon, a Member in Clark Hill’s Estate Planning & Probate Practice Group, has over thirty years of practice experience and is certified as a tax specialist by the Arizona Bar. Darra’s work includes tax planning, business entity formation and representation including corporations, partnerships, limited liability companies, and other businesses, estate and wealth succession planning, asset protection, exempt private offerings, and real estate matters. She is also a Certified Fiduciary through the Arizona Supreme Court, and as such, serves as trustee and in other fiduciary capacities when called upon. The Legal Broadcast Network is a featured network of Sequence Media Group.