Everyone, regardless of their financial status, should possess essential estate planning documents. These may consist of a revocable trust, pourover will, HIPAA Release, durable power of attorney for finances, living will, and health care directive. These documents play a crucial role in determining how your assets are distributed and appointing individuals to manage financial and health care matters in the event of disability or death.

READ MORE: Ranking Arizona: Top 10 law firms for 2024

DEEPER DIVE: Ranking Arizona: Top 10 hospitals for 2024

Revocable Trust

A revocable trust serves as a roadmap for the distribution of assets transferred to the trust, whether done during one’s lifetime or upon death. This type of trust offers several advantages:

  1. Probate Avoidance: Assets placed in a revocable trust bypass probate, saving both time and costs associated with the probate process. Additionally, probate proceedings are typically public record, whereas assets in a revocable trust remain private.
  1. Retained Control: As the trustee, you maintain complete control over all assets in the trust during your lifetime.
  1. Disability Management: In the event of disability, a designated successor trustee can effectively manage the trust assets on your behalf.
  1. Customizable Provisions: You have the flexibility to tailor the dispositive provisions of your revocable trust to benefit your intended beneficiaries and future generations. This can include implementing effective tax planning and incorporating lifetime trust provisions.
  1. Creditor Protection: By employing appropriate lifetime trust provisions, you may be able to secure creditor protection for assets passing to your beneficiaries and more distant relatives. This may protect assets from potential creditor claims and certain divorce-related issues.

Pourover Will

A pourover will serves as a complementary document to a revocable trust, addressing assets not transferred to the trust during your lifetime. Here’s how it works:

  1. Asset Transfer: The pourover will stipulates that any assets not previously transferred to your revocable trust during your lifetime are automatically “poured over” into the trust upon your death. This ensures that assets without trust titling or beneficiary designations follow the terms of your revocable trust.
  1. Probate Consideration: It’s important to note that although the pourover will facilitates the transfer of assets to the trust, these assets may still go through the probate process.

Additionally, a pourover will may:

  • Guardianship and Conservatorship: Appoint a guardian and conservator for minor children, providing for their care and financial matters if necessary.
  • Estate Administration: Appoint a personal representative to handle probate estate administration issues. This becomes relevant if any of your assets were not transferred to the trust during your lifetime.
  • Final Wishes: State your preferences regarding burial or cremation, ensuring your wishes are known and followed.

In summary, a pourover will acts as a safety net, ensuring that any remaining assets not held in the trust are appropriately directed according to your estate plan, while also addressing important matters like guardianship and personal representative appointments.

Durable Power of Attorney

A durable power of attorney for finances empowers you to appoint an individual to handle your assets and make legal decisions on your behalf in the event of your incapacity. This proactive measure helps you avoid the potential drawbacks of a guardianship or conservatorship proceeding, including significant costs, public exposure, and delays. By granting someone the authority through a durable power of attorney, you ensure a smoother and more efficient management of your financial affairs during times of incapacity, without the need for court intervention.

Health Care Power of Attorney and Living Will

A durable power of attorney for health care allows you to designate an agent who will make health care decisions on your behalf if you become incapacitated and are unable to make those decisions for yourself. This document ensures that your medical preferences are upheld even when you are unable to communicate them.

A living will outlines your preferences regarding medical treatments in specific situations, especially in cases of incurable or terminal conditions. It serves as an expression of your intentions regarding the medical interventions you do or do not want if you are facing end-of-life scenarios. Together, these documents provide a comprehensive framework for guiding medical decisions that align with your wishes when you are unable to voice them yourself.

HIPAA Release

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) introduced stringent rules to protect the privacy of medical records. While these regulations are crucial for safeguarding personal health information, they can pose challenges for individuals designated as agents under your estate planning documents when they need access to your medical records.

To address this, a HIPAA Release is a specific authorization that you can provide to your designated agents. This release grants them permission to access your health care information without encountering delays or obstacles imposed by HIPAA regulations. By having a HIPAA Release in place, you ensure that your designated agents have the necessary authority to obtain and review your medical records, facilitating informed decision-making regarding your health care when you are unable to do so yourself.

Best Practices with Respect to Essential Estate Planning Documents

The phrase “it’s a journey not a destination” rings especially true in the context of estate planning; based on your stage in life, your estate plan should be reviewed and updated as necessary. For example, persons undergoing substantial life changes (e.g., selling businesses, real properties, getting married, etc.) should consider annual or bi-annual reviews of there estate plan. Whereas persons with less life changes (e.g., retired persons, students, etc.) may consider reviewing their estate plan every two to three years.

Some common factors that should trigger an estate plan review include:

  1. A significant change in the nature or value of the assets in your estate. With ever changing gift and estate tax laws, clients who have a substantial change in net worth or anticipate a substantial change in net worth should consult with an estate planning attorney to ensure that their current estate plan is appropriate for such a change.
  • Marriage or Dissolution of a Marriage. Given that many states, such as Arizona, have different laws for married couples vs. single couples, marriage should trigger an estate plan review. For example, under Arizona law, a surviving spouse of a blended family (e.g., a client’s surviving spouse from a new marriage where the client has children from a prior marriage), may, by default receive up to 50% of a decedent’s client’s estate absent planning by the client. Furthermore, clients who expect large inheritances may desire to incorporate pre-nuptial planning into their estate plan prior to getting married to ensure that such inheritances do not become commingled and, thus, reachable by a divorcing spouse.   
  • Birth or Adoption of a Child. The birth or adoption of a child should prompt a review of existing estate planning documents. It’s crucial to determine whether the current documents account for what occurs when the client becomes a parent, particularly regarding their first child, and whether the definition of “child” includes or excludes adopted children. This ensures that the estate plan accurately reflects the client’s wishes and provides for all relevant family members.
  • Death of a Beneficiary. The death of a named beneficiary can significantly alter an existing estate plan. It’s important to understand what happens to the share designated for the deceased beneficiary and whether the client wants this outcome. For instance, does the deceased beneficiary’s share automatically transfer to their descendants, or does it pass to other beneficiaries specified in the estate plan? Clarifying these details is essential for ensuring the desired distribution of assets.
  • Retirement or Death of Existing Estate Planning Attorney. As the Baby Boomer Generation moves into retirement, it becomes crucial for clients to ensure there’s a succession plan for their estate planning team. Many attorneys in this field are retiring or transitioning their practices. Therefore, it is prudent for clients of these attorneys to seek new counsel and have their current estate plan reviewed. This ensures clarity and addresses any questions before the client’s passing, benefiting both them and their families.

Author: Spencer Fane attorney Samuel M. DiPietro collaborates with families and their advisors to create customized estate plans that consider the specific needs of each family, ensuring the protection and seamless transfer of wealth. He can be reached at sdipietro@spencerfane.com and 602.333.5444.