3 Ways to Avoid Probate in Arizona
2023-03-15
Posted at 20:50h
in Living Trusts, Probate
Many people believe that listing their assets and naming beneficiaries in a will is enough for their estate to avoid probate. However, wills are always required to go through probate, because the court needs to validate them.
Probate is the legal process of distributing the assets of someone who has passed away. It typically takes at least a year to complete, and it can be stressful and expensive for your loved ones, but careful preparation can allow your estate to skip the entire process.
In Arizona, any assets held solely in your name that do not have a beneficiary designation will be subject to probate. This can include real estate property, vehicles, bank accounts, personal possessions, and more. Luckily, there are many ways to avoid probate in Arizona—let’s take a look at the best and worst methods.
Here’s what NOT to do if you want to avoid probate.
Some attempts to avoid probate can actually cause more problems during your lifetime. Here are three WRONG ways to try to avoid probate.
1: Own Property in Joint Tenancy
Adding an additional person to the title of your house, vehicle, bank account, or other property through joint tenancy puts that asset at risk.
Say you add your child to your home’s title so that they can easily inherit the property after you pass. However, they get hit with a personal injury lawsuit while you’re still living in the house. Or say they go through a messy divorce.
Your home could be taken from you in your child’s lawsuit or divorce proceedings, because the property belongs to you both.
2: Add Payable-on-Death Beneficiaries to Bank Accounts
Another method that technically avoids probate is adding payable-on-death (POD) beneficiaries to your bank accounts and other financial assets. POD beneficiaries will receive the funds immediately after your death, and not any sooner.
But estate planning isn’t just about what happens after you die, it’s also about protecting your assets during your lifetime. If you become disabled, a POD beneficiary cannot access those funds to manage your finances on your behalf or pay for your medical care.
3: Name Children as Life Insurance Policy Beneficiaries
Most parents plan for their life insurance policy proceeds to go to their kids after they pass away. Naming your children as beneficiaries of the policy will keep it out of probate, but it will also distribute the funds in one lump sum.
If your child is still young, financially irresponsible, or inexperienced with handling money when you pass, receiving the large inheritance all at once can overwhelm them and set them up for failure.
Three Effective Ways to Avoid Probate in Arizona
With careful planning, you can keep all of your assets out of probate. Here are three of the BEST methods for avoiding probate.
1: Living Trusts
The best way to avoid probate without risking any of the issues mentioned above is to set up a living trust. When you place your property in a living trust, ownership is transferred to the trust. That way, if your beneficiaries \go through lawsuits or divorces during your lifetime, your property will remain safely unaffected.
With a living trust, you will be the trustee until you pass away. As trustee, you may continue to manage the assets in the trust during your lifetime. Just make sure to name a trustworthy successor trustee who will carry out your instructions for managing the trust and distributing its assets after your death.
You can include specific instructions for your successor trustee about when and how your beneficiaries receive their inheritance. In this way, a living trust gives you more control over how your life insurance proceeds and other funds are distributed.
For instance, you can dictate that a minor child doesn’t receive their trust inheritance until they turn eighteen, graduate college, or meet another requirement. You can also decide to leave the inheritance in a series of installments, to make it easier for your beneficiary to manage the finances.
One drawback is that your successor trustee cannot access your bank account or other financial accounts if you become disabled. To resolve this problem, you need to name as power of attorney someone who you can trust to handle your medical and financial affairs. You should also draft a living will that explains your medical care preferences.
2: Community Property with Rights of Survivorship
In Arizona, any property you acquire during your marriage is considered community property. This means that it belongs to both you and your spouse, even if only one of your names is on the title.
Most community property states distribute half of any shared property to the surviving spouse, and the other half to the decedent’s heirs—and it can still be subject to probate. But community property in Arizona has “rights of survivorship,” meaning it will automatically transfer to your spouse after your death without having to go through probate.
So if you want your half of any shared property to go directly to your spouse, then you don’t need to do anything. However, if you want it to go to your children or to another beneficiary, you will need to set up a joint trust with your spouse. A joint trust allows you to leave instructions on how you wish to distribute your half of the community property and still ensures the assets within avoid probate.
You can set up a joint trust so that it will split into two trusts when one spouse passes away—this way no one can make changes to the decedent’s trust. Or, you can have the joint trust remain intact until both spouses pass, so that the surviving spouse can make changes as necessary.
3: Beneficiary Deeds for Real Estate Property
Also known as a transfer-on-death (TOD) deed, a beneficiary deed transfers real estate ownership automatically upon the death of the owner. Beneficiary deeds avoid probate and allow you to give property to loved ones without having to pay the gift tax.
Just like a living trust, you will retain control of the property during your lifetime, so you can still sell, rent, or mortgage the property when needed. Plus, you can always revoke the deed or change the beneficiary.
But if you want to leave property to minor children, you must create a trust. Only adults eighteen and over can inherit property through a TOD. With a living trust, your successor trustee will manage the property according to your precise instructions until the child becomes a legal adult.
Consult an Expert in Arizona Probate Law
Not sure if your estate will avoid probate? The experienced attorneys at Phelps LaClair can help you create and manage all of the necessary legal documents for avoiding probate in Arizona.
We’ll help to ensure that your estate plan remains valid and successfully continues to avoid probate. We will carefully review your estate plan with you every three years so that it stays up to date. Call us at 480-892-2488 today to get started with a free consultation.
Images used under creative commons license – commercial use (3/15/2023). Photo by Melinda Gimpel on Unsplash
